This analysis is by Bloomberg Intelligence analyst Mike McGlone. It appeared first on the Bloomberg Terminal.
The three crypto asset stalwarts — Bitcoin, Ethereum and the proliferation of crypto dollars — may be gaining underpinnings with the purging of some speculative excesses at the start of 2022. The nascent technology allows the ability to transact dollars around the clock at little cost and earn interest, and is key part of the revolution in digital assets.
Top digital-asset bull market: Crypto dollars
The fact that Ethereum made crypto dollars possible, and the escalating use of the technology to transact greenbacks, support the No. 2 crypto’s price. Approaching $170 billion on Feb. 2, the market cap of the top six crypto dollars listed on Coinmarketcap is up about 5x from the start of 2021. That pace may slow, but we see little to stop what is billions of dollars of market cap from reaching trillions. Our graphic depicts the strong companionship between the Ethereum price and proliferation of crypto dollars.
Crypto dollar issuers are a prime target of U.S. regulation in 2022. Increasing dollar dominance through digital tokens, jobs, votes, plenty of tax revenue and risks of falling behind are the top reasons we expect the U.S. will embrace crypto assets with proper regulation.
Trend’s your friend – Crypto dollars and Ethereum
The triple treat: Bitcoin, Ethereum, crypto dollars
The proliferation of crypto dollars is an indication of the increasing dominance of digital assets, with bullish implications for the greenback, Bitcoin and Ethereum. Among the top five cryptos listed on Coinmarketcap on Feb. 2, two are crypto dollars. Tether, the No. 3 crypto after Bitcoin and Ethereum, is the primary so-called stablecoin and not without controversy, but there are well over a dozen tokens with significant market caps tracking the dollar. We view stablecoins as misnamed, as virtually all are linked to the greenback.
Ethereum is the primary platform for crypto dollars and nonfungible tokens (NFTs), and a key support for Ether’s price. We believe expunging some of the speculative excesses of 2021 is accelerating the maturation of Bitcoin, Ethereum and crypto dollars into the mainstream.
Crypto dollars’ enduring market cap expansion
What stops the dominating dollar?
The dollar may be entering a potential win-win scenario, if cryptos are a guide. The U.S. raising interest rates in 2022, compared with No. 2 China cutting in what appears to be a response to economic stress, should provide solid underpinnings for the buck. Our graphic depicts the U.S. Treasury two-year yield rising above 1%. Juxtaposed is the downward slope of China’s two-year, which appears to be accelerating. It’s little surprise that the trade-weighted broad dollar has been rising since China’s yield peaked in 2013.
We see little to stop the buck’s upward trajectory, which appears to have found a bottom in 2021 akin to 2018. The proliferation of crypto dollars (and free markets going for the greenback via digital tokens) vs. all others is a show of dollar confidence.
Solid underpinnings – dollar digital dominance
