Crypto Could Enjoy “Renaissance” as Trust in Banks Fades: Druckenmiller


Key Takeaways

  • Legendary investor Stanley Druckenmiller has hinted at a “renaissance” for the crypto space if public trust fades in central banks.
  • Still, rate hikes from the Fed and worsening macroeconomic conditions have proven brutal to the industry.
  • Cryptocurrencies like Bitcoin and Ethereum have not gone unnoticed by the traditional investment class.

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The global crypto market capitalization is almost 70% down this year, largely thanks to the Federal Reserve’s commitment to hiking interest rates. Nevertheless, investing legend Stanley Druckenmiller sees a silver lining for the space.

Druckenmiller Calls for Bounce 

Despite the selloff, crypto has endured due to the ongoing global economic meltdown, Stanley Druckenmiller thinks the nascent asset class could see a revival as the macro situation worsens. 

Speaking at CNBC’s Delivering Alpha conference Wednesday, the legendary U.S. investor discussed the current macroeconomic landscape and added commentary on how digital assets like Bitcoin and Ethereum could be affected. 

Druckenmiller said that he thinks the U.S. economy could suffer from a “hard landing” in the medium-term future, adding that he would be “stunned if we don’t have [a] recession in 2023.” 

Druckenmiller chose not to mince his words as he discussed the bleak macro picture. He said that the U.S. was “in deep trouble” and shared an ominous warning that “something really bad” could happen due to the worsening state of the economy. 

Although Druckenmiller’s commentary may be enough to scare investors worldwide, given his peerless track record in playing market cycles, he hinted there could be a silver lining for crypto enthusiasts. Druckenmiller posited the idea of a crypto “renaissance” if people start to lose trust in central banks. 

Crypto’s Reaction to Economic Turmoil

The world’s most powerful central bank, the Federal Reserve, has had a tight grip on global markets this year as inflation has soared, and crypto assets like Bitcoin haven’t been spared from the pain. The value of the cryptocurrency space is about 68% short of its November 2021 peak, thanks mainly to market exhaustion and the Fed’s commitment to hiking interest rates. 

The Fed announced a third consecutive 75 basis point rate hike on September 21, causing Bitcoin, Ethereum, and stocks to slide. Fed Chair Jerome Powell has repeatedly indicated that the U.S. central bank is targeting a 2% inflation rate, but inflation hasn’t shown a significant slowdown; the last consumer price index print came in higher than expected at 8.3%. That suggests further rate hikes from the Fed could be on the horizon. 

While Bitcoin is over 70% down from its $69,000 peak, it’s also seen some relief amid the ongoing economic uncertainty. When inflation cooled last month, the top crypto rallied on the market’s hopes of a possible end to the so-called “crypto winter.” The crypto market also reacted positively to the Fed’s July rate hike because the 75 basis point increase came in lower than some economists had forecast. 

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Still, the Fed’s hawkish stance has hugely impacted crypto this year, and the market slump is ongoing. Druckenmiller’s argument is that the asset class could see a bounce not because of the Fed flipping from hawkish to dovishbut because people may lose trust in central banks like the Fed altogether. 

Bitcoin has long been touted as an inflationary hedge owing to its scarcity (there will never be more than 21 million coins), and big players like MicroStrategy and Paul Tudor Jones helped evangelize that thesis in the heat of the 2021 bull run. More recently, though, its ability to serve as a bet against inflation has been called into question. If Druckenmiller is proven right, crypto may finally have its moment in the sun. The market will need to help it trade independently from the Fed first, though. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.

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