Fears of a recession in America are growing, as are the number of warners – Bank of America is one of them. The Reuters news service reported that Bank of America strategists warn in their weekly research note of the manifestation of an inverse interest rate structure in the US.
This is an inverted yield curve of the yields on the 2-year and 10-year government bonds. Experts fear that a combination of deteriorating macroeconomic conditions and the Fed’s tightening of interest rate policy to rein in inflation is likely to plunge the US, and with it the global economy, into recession.
If an FOMC communication of 16 March is to be believed, it is likely that the Federal Reserve will start reducing assets from its total balance sheet of about $9 trillion as early as its meeting in early May. It is also expected that the Fed will raise the key interest rate by 50 basis points.
Michal Hartnett, chief strategist at BoA, warned in his note to clients that rising inflation could trigger a series of shocks to the economy: According to him, the inflation shock is getting worse, while the interest rate shock is starting and the recession shock is coming.
His conclusion: cash, commodities and cryptocurrencies could pull out of inflation better than stocks and bonds, as most assets would be subject to massive fluctuations in a recession, but bonds and stocks would tend to perform worse.
Change of heart
While it used to be the case that traditional financial institutions were rather critical of the crypto industry, this viewpoint has recently begun to waver, as can be seen in the rising crypto exposure of the “big players” such as JPMorgan, Goldman Sachs or Citigroup.
Now Bank of America is joining this illustrious circle, for which bitcoin has become too big to ignore since last year at the latest. In its research report on digital assets in October 2021, the BoA emphasised that in addition to Bitcoin, other cyberdevices, NFTs and DeFi, as well as the impact on other industries, social media and gaming, were also in focus.
Candace Browning, Head of BoA Global Research: “Digital assets are changing the way markets, businesses and central banks operate.” She added that research into digital assets intensifies the bank’s offering as a leading global payments platform with blockchain expertise.
Against this backdrop, and the fact that analysts have already commented on the crypto universe on several occasions in recent months – such as the enormous opportunities in the Metaverse or the market capitalisation of the Solana smart-contract platform, which could overtake Ethereum as the leading blockchain – it is safe to assume that soon even the last naysayers will cease their prophecies of doom and realise what potential the crypto sector holds.