Bloomberg Intelligence’s Senior Macro Strategist, Mike McGlone, has issued a warning that Bitcoin could experience a price drop of over 60%. McGlone points to negative liquidity and rising global interest rates as the main factors contributing to this outlook, despite signs of an impending recession.
McGlone maintains that the United States is likely to face a recession by the end of 2023. He identifies the $30,000 mark as a critical resistance level for Bitcoin and suggests that the cryptocurrency is more likely to decline toward the $10,000 range.
The strategist also identifies a substantial risk for the broader cryptocurrency market, which he believes could come from a downturn in the stock market triggered by a recession. He states that the weakness observed in the crypto market during the third quarter of 2023 could either be a temporary setback or an indication of a recessionary trend. McGlone leans toward the latter interpretation, noting that most risk assets have shown gains in 2023 but have started to decline in the recent quarter.
He further elaborates that central banks around the world are continuing to tighten their monetary policies despite signs of economic contraction in both the United States and Europe, as well as the ongoing property crisis in China. McGlone sees these developments as having deflationary implications.
Drawing parallels with historical financial events, McGlone mentions that the Bloomberg Galaxy Crypto Index (BGCI) is underperforming, which he believes could be a result of changes in an asset class that has thrived on zero interest rates. He recalls that spiking U.S. Treasury yields in 1987 occurred just a week before a market crash and that crude oil prices peaked in July 2008. He suggests that similar patterns could be observed with Bitcoin, especially since fluctuations in Bitcoin prices have historically preceded shifts in Federal Reserve policies.
Last week, one of McGlone’s colleagues — Jamie Coutts, who is a crypto market analyst at Bloomberg Intelligence — discussed the evolving role of Bitcoin in the global asset allocation landscape. Coutts anticipated increased market volatility, influenced by current trends in yields, the U.S. dollar, and the global M2 money supply. He highlighted that since 2020, Bitcoin and Gold are the only assets that have seen a decline in their volatility profiles, contrasting sharply with global fixed income assets and equities, which have seen volatility increases of 53% and 33%, respectively.
Coutts also noted that Bitcoin’s volatility has been on a slight downward trend since 2017, if one excludes its hyper-volatile early years (2011-2014). He finds this trend significant, given the macroeconomic factors at play. Despite the rising U.S. dollar and 10-year Treasury Yields, along with a declining global M2 money supply, Coutts believes that Bitcoin can serve as a risk diversifier and improve risk-adjusted returns. He cited improvements in Bitcoin’s risk-adjusted returns, measured using the Sortino ratio, during the last two bear markets.
Acknowledging Bitcoin’s short history, Coutts stated that holding the cryptocurrency through multiple cycles has proven beneficial. He concluded by suggesting that asset allocators might increasingly turn to Bitcoin as a hedge against monetary debasement, given its advantages over bonds in this context.
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