A Warning for Crypto Investors
As the U.S. economy edges closer to a recession, the first major downturn since Bitcoin’s launch in 2009, Mike McGlone, Bloomberg Intelligence’s Senior Macro Strategist, issues a stern warning to cryptocurrency investors. He suggests that the market should prepare for tougher times, with the likelihood of increased volatility and advises limiting exposure to risk assets.
The Market Skepticism
Contrary to the consensus view that the worst for cryptocurrencies is over, as indicated by their bounce in 2023, McGlone disagrees. He points to the falling crypto prices in the second quarter as a sign of skepticism about the stock market’s ability to maintain its first-half bounce. The recent surge in equities prices, he argues, raises the prospect of further rate hikes by the Federal Reserve, which could pose a potential lose-lose scenario for risk assets.
The “Don’t-Fight-The Fed” Mantra
McGlone emphasized the relevance of the “don’t-fight-the Fed” mantra to Bitcoin and other cryptocurrencies. With the stock market rallying and central banks remaining vigilant, risk assets could face significant obstacles. To illustrate his point, he refers to the performance of the Bloomberg Galaxy Crypto Index (BGCI) against the Nasdaq 100 Stock Index. While the latter surged in the second quarter, the BGCI declined. This scenario, coupled with rising expectations of rate hikes, may put a ceiling on crypto prices.
China’s Softening Stance and the Gold Vs. Bitcoin Debate
Nevertheless, there is a glimmer of hope for the crypto market in China’s more accommodating stance. This change in position comes as a relief amidst regulatory crackdowns on the industry in the U.S. However, considering the potential performance of Bitcoin versus gold in a U.S. recession, McGlone suggests that gold might outperform. Gold typically shines during such periods, potentially making it a more favorable asset compared to Bitcoin, which is still seen as a nascent risk asset.
The Outlook for Bitcoin
The strategist paints a cautious picture for Bitcoin investors, warning that the worst days for the leading cryptocurrency might still lie ahead. He highlights the possibility of a Bitcoin pullback all the way to $7,000, its price at the end of 2019 before an unprecedented liquidity boost. Such a move would be the worst-case scenario. The enduring patterns of boom and bust tied to liquidity changes lead McGlone to suspect that Bitcoin may continue to respect the downward trend of the 52-week mean.