Commodity Strategist Mike McGlone Says Cryptocurrencies May Be Facing Their First Real Recession

Bloomberg Intelligence senior commodities strategist Mike McGlone warned that “cryptocurrencies could face their first true recession.” He added that the tightening of the Federal Reserve, despite the risk of a recession, “could be a major headwind for most risky assets, especially cryptocurrencies.”

“Cryptos could face its first real recession”

Bloomberg Intelligence (BI), the research arm of Bloomberg, published its crypto forecast for February 2023 last week. Commodities BI Senior Strategist Mike McGlone tweeted Sunday:

Cryptocurrencies could face their first true recession, which usually means lower asset prices and higher volatility.

“The last significant economic downturn in the US, the financial crisis, led to the birth of bitcoin, and the possible coming economic reset could mark similar milestones,” he added.

As to “how much price pain will be before long-term gains resume,” the report details: “Our chart shows the Nasdaq 100 is in line with [bitcoin’s] The 200-week moving average is relatively high based on the history of US recessions,” elaborating:

We do not expect the crypto market to be spared if the wave of risky assets continues to recede.

Fed tightening ‘could be a major headwind’ for cryptocurrencies

“Central bank action has a long-term effect, and most risky assets fall during a recession. This could create problems for cryptocurrencies, which are among the most risky,” notes Bloomberg Intelligence. “Crypto lows may have come with the demise of FTX, but a scenario more similar to the collapse of Lehman Brothers is also possible, with the trough dipping much lower after about 6 months.”

The report continues:

A tightening of the Fed, despite the risk of a recession, could be a major headwind for most risky assets, especially cryptocurrencies. Buy and hold strategies can benefit from more speculative and leveraged strategies given the rise in volatility that is common in bear markets.

“The pandemic has been a major shock that could shape markets for years to come. This triggered the biggest fiscal and money pump in history, which is still in the process of being dumped,” the report says. “Typically, risk assets bottom well after the first Fed easing, which remains pretty far off in early February.”

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