On October 2, 2023, Mike McGlone, Commodity Strategist at Bloomberg, expressed his concerns on X (formerly Twitter) regarding the current trend in the cryptocurrency market, despite Bitcoin (BTC) having risen above $28,000 on Monday. He noted that cryptocurrencies are now facing the possibility of a recession, and the third quarter’s weak performance in the crypto space might either be a temporary recovery blip or a more ominous sign of an impending recession; the bias as indicated by the analyst is the latter.
McGlone stated, “Crypto weakness in 3Q may be a recovery blip or a recession leaning. Our bias is the latter, as almost all risk assets gained in 2023 and rolled over into the quarter.” The rationale behind this viewpoint is that various risk assets throughout 2023 had seen considerable gains but later saw a drop in the current quarter.
The Bloomberg Galaxy Crypto Index (BGCI) is observed to have underperformed relative to expectations, which may signify a fundamental shift for an asset class that had previously been accustomed to thriving in a zero-interest-rate environment. Historical parallels are drawn, such as the peak in US Treasury yields prior to the 1987 crash and the peak in oil prices in July 2008. The correlation between Bitcoin’s downturns and Federal Reserve policy pivots is also explored, suggesting that Bitcoin’s movements could provide insights into potential shifts in the broader market liquidity.
McGlone also highlighted the importance of time in this analysis, comparing it to the cautious attitude towards crypto ETFs when the BGCI was launched in 2018. He said, “Bitcoin swoons have preceded Federal Reserve pivots, which may underscore the crypto’s leading indicator attributes and what might be needed to revive liquidity.”
To conclude, the market analysis emphasizes the vulnerability of the crypto market to broader economic trends, indicating a cautious outlook and the potential for a prolonged recessionary phase.
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