A Rising Rate Environment will Tilt from Bonds to Crypto, Says Fundstrat Founder

Speaking on CNBC’s Crypto World Monday, Thomas (Tom) Lee, the founder of equity research firm Fundstrat Global Advisors, opined that with interest rates being on a reversal after experiencing a 30-year decline. 

This is a game-changer for crypto because other investments like bonds will become less attractive. Lee noted:

“That means for the next 10 years, you’re guaranteed to lose money owning bonds… that’s almost $60 trillion of the $142 trillion [of U.S. household net worth].”

He suggested that the $60 trillion would find its way into the crypto sector to earn yield. 

“The obvious thing is it rotates into stocks like FAANG, but I think what is more likely is a lot of speculative capital from equities… it’s really going to be tracing its roots to a rotation out of bonds and it’s going to eventually flow into crypto.”

The market predicts the United States for the upcoming rising interest rate hike, while the latest Consumer Price Index (CPI) stands at 7.5% year-over-year. 

Lee, however, acknowledged that an open mind is of the essence in the crypto market based on the volatility experienced. He stated:

“Unless someone really has a crystal ball, it’s very difficult to be precise in crypto. Drawdowns of 40% are really common and bitcoin makes most of its gains in 10 days in any single year. It’s tough to be too precise with crypto. It’s wide lanes.”

Crypto has emerged as an alternative asset class, having experienced significant diversification beyond trademark cryptocurrencies, like Bitcoin (BTC) and Ethereum (ETH), in the last two years.

Some of the new members become active in the cryptocurrency family, such as block decentralized finance (DeFi), stablecoins, and non-fungible tokens (NFTs). Nevertheless, these new assets have to stand the test of time so that investors can gain confidence in them as they have in Ethereum and Bitcoin.

A recent study by blockchain firm Paxos noted that consumers were changing their minds because they were treating crypto as ideal investment vehicles. 

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