Bloomberg Intelligence’s Senior Commodity Strategist Mike McGlone warns that cryptocurrencies might be entering their first real downturn. The Federal Reserve’s tightening of policy despite the risk of a recession “could be a major headwind for most risk assets, especially cryptocurrencies,” he concluded.
“Cryptocurrencies may be facing their first real downturn”
Last week, Bloomberg Intelligence (BI), the analysis arm of Bloomberg, released its February 2023 crypto outlook. On Sunday, BI Senior Commodity Strategist Mike McGlone tweeted:
Cryptocurrencies may be undergoing their first real downturn. This often leads to cheaper asset prices and increased volatility.
“The last major economic contraction in the US, the financial crisis, gave rise to bitcoin, and the possible economic restart that is coming may herald similar milestones,” he concluded.
Concerning “how much pain there will be in prices before long-term gains resume,” the report states: The chart shows the Nasdaq 100 being at par [with bitcoin’s] common 200-week moving average, comparatively high based on the history of US recessions.
We wouldn’t be surprised if crypto markets aren’t buoyed by the rising tide of risky assets.
Cryptocurrencies, for Fed tightening regulations “may very well prove to be a significant hurdle”
“Central bank actions often lag behind shocks and most risk assets tend to decline in recessions. That could spell trouble for cryptocurrencies, which are among the riskiest,” Bloomberg Intelligence noted. “The low point for cryptocurrencies may have come with the demise of FTX, but a scenario more like the collapse of Lehman Brothers is also possible, where the low point was much lower about 6 months later.”
The report continued:
Fed tightening despite recession risk could be a major obstacle for many risky assets, including cryptocurrencies. Long and speculative positions can be profitable at the expense and leverage of other strategies, given the high volatility of bear markets.
“The pandemic was an immense disruption that can shape markets for years. It unleashed the biggest fiscal and monetary bomb in history, and that is still being dumped,” the report added. “Risk assets typically bottom out long after the Fed first eases, which is still pretty far back in early February.”
Do you agree with Mike McGlone of Bloomberg Intelligence? Let us know via the feedback page.
Picture credit: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It should not be considered as a solicitation or offer of direct services, nor a solicitation to buy or sell any product, company, or service. Bitcoin.com cannot provide financial, tax, legal, or accounting advice. Neither the author nor the company is liable for any damage, loss, or claim that may arise from or in relation to the use or reliance of any content or items mentioned in this article.
