No one dared to talk about the potential of stagflation, the dreaded word representative portmanteau of stagnation and inflation, during the World Economic Forum in Davos at the start of this year despite the Trump’s price and the trade war.
However, investors have recognized the risk of a word, leading to the outperformance of strategies linked to stagflation compared to buying and maintenance bitcoin and S&P 500.
Since last week, the “Stagflation basket” of Goldman Sachs, which bet on the strength of basic products and defensive parts such as health care and shorts on consumption discretion, semiconductors and non-profitable technological actions, has increased by almost 20% for the year.
The S&P 500, Wall Street’s reference stock index, fell 4% this year, with Bitcoin, the main cryptocurrency per market value, down 10%, by data source tradingView and Coindesk.
The International Monetary Fund defines stagflation as a situation where high inflation coincides with economic stagnation, high unemployment and a general drop in economic activity.
“It seems that the prices of equity and bonds adapt to lower growth and higher inflation [stagflation] – Although there are other factors at work here – health care, for example, most likely benefit from the promise of deregulation compensating for direct funding reductions, “said Crypto is Macro Now at Coindesk Noelle Acheson.
Stagflation murmurs have been heard since the beginning of 2022, but the markets began to priced the same thing this year, mainly due to Trump prices and increasing trade tensions.
Inflation metrics with an advanced aspect such as two years and five years exchanges have reached multi -year summits, a sign of fears of a trade war making consumption more expensive. Meanwhile, a key section of the Treasury market curve recently reversed the inversion, reporting an upcoming recession. Several GDP trackers in real time, such as the GDP of the Atlanta Fed, have pointed out a strong contraction of economic activity.
BTC failed in digital gold?
Potential stagflation is a perfect situation for assets with a value store perceived as Bitcoin to shine. Note that gold has won 13% this year.
However, the case of Taurus in the cryptocurrency proposed by its holders for years has not materialized. In fact, the correlation of BTC with American actions has been strengthened in recent weeks.
This does not necessarily mean that BTC is no longer a safe refuge, according to Noelle Acheson, author of the popular crypto is Macro Now Newsletter.
“The BTC is a short -term asset with prices set by the last short -term trade – in the long term, it is a safe refuge given its verifiable hard ceiling and its global utility – nowadays, the market is in risky mood, so macro wallets are lightening posts, and we have not yet seen the new entries necessary to obtain the next professional investors The two professional investors and purchases “no.
She explained that the rear winds remain intact and once the market will adapt to the new economic landscape, the entrances to the cryptography market will probably resume.
“The rear winds remain intact, with education, the new online institutional services and the courts around the world developing regulatory executives with which the institutions will be comfortable (and through them, the consumer retail trade),” said Acheson.
Stagflation pricing
Markus Thielen, founder of 10x Research, offered a slightly different socket, saying that the market is wrong to read the situation as stagflation.
“What we probably see is a front load of the pricing impacts, which leads to a temporary increase in the demand for raw materials which should fade in the coming months. In addition, the uncertainty surrounding Doge weighs the expectations of growth,” Thielen told Coindesk.
He added that a dominant potential tone of the Fed later this week could rekindle an upward mood in risk assets, including the BTC. Last week, Trump stopped a plan to double American prices on Canadian steel and metal imports at 50%. The Fed should announce its rate review on Wednesday.
“Trump’s recent comments suggesting a potential flexibility of aggressive trade policies combined with a slightly dominant tone of the Fed this week could open the way for a rebound in growth -oriented assets. Historically, betting on prolonged stagflation have rarely been a winning strategy in the past 40 years,” said Thielen.
