Mike McGlone, Commodity Strategist at Bloomberg, highlighted on X (formerly Twitter) on October 2, 2023, the concerning trend in the cryptocurrency market despite Bitcoin (BTC) rising above $28,000 on Monday.
McGlone noted that cryptocurrencies are currently grappling with the specter of a recession, and the third quarter’s weakness in the crypto space could either be a transient recovery blip or a more ominous sign of an impending recession. The prevailing sentiment, as indicated by the analyst, leans towards the latter possibility.
“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 perspective is rooted in the performance of various risk assets throughout 2023, which exhibited gains but subsequently experienced a downturn in the current quarter.
Despite signals of economic contraction in the US and Europe, coupled with a property crisis in China with deflationary implications, most central banks persist in their tightening measures. This backdrop sets the stage for a nuanced analysis of the crypto market.
Parallels between 1987 and 2008 peak oil prices
The Bloomberg Galaxy Crypto Index (BGCI) is observed to have underperformed relative to expectations. The analyst suggests that this may signify a fundamental shift for an asset class that had become accustomed to thriving in a zero-interest-rate environment.
Drawing historical parallels, the strategist points to instances such as the spike in US Treasury yields preceding the 1987 crash and the peak in crude oil prices in July 2008.
The narrative further explores the correlation between Bitcoin’s downturns and Federal Reserve policy pivots. This observation suggests that Bitcoin’s movements could serve as a leading indicator, providing insights into potential shifts in broader market liquidity.
McGlone emphasizes the inevitability of time playing a crucial role, drawing a parallel to the cautious perspective held on crypto ETFs when the BGCI was launched in 2018.
“Bitcoin swoons have preceded Federal Reserve pivots, which may underscore the crypto’s leading indicator attributes and what might be needed to revive liquidity.”
In summary, the market analysis underscores the vulnerability of the crypto market to broader economic trends, signaling a cautious outlook with the potential for a protracted recessionary phase.
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