Mike McGlone, Bloomberg Intelligence’s senior macro strategist, warns that Bitcoin (BTC) could face strong headwinds this year.
McGlone tells are 58,800 Twitter followers that an economic recession is likely to hit the US soon and that it could affect risky assets like Bitcoin and other cryptos.
“In particular, negative liquidity versus bouncing Bitcoin – Recessions typically portend struggling risk assets and lower interest rates as central banks add liquidity. Cryptos are the most at risk, with Bitcoin being the least concern. According to Bloomberg Economics, the US is unlikely to avoid an economic contraction by the end of the year, but the future shows that the Fed is more inclined to continue rambling.
Taking into account liquidity rules, which were particularly negative at the end of 1H (first half of the year), our bias is that the long-awaited recession will bring typical headwinds, particularly for cryptos and stocks that bounced.”
McGlone also says Bitcoin could perform similarly to how gold performed during the Great Recession of 2008, when it fell 30% before starting a rally.
“The image shows Bitcoin’s upward trajectory for a first — the likelihood of a NY Fed recession relative to the yield curve at its largest since 1982. That gold fell about 30% from its 2008 peak before rallying at got underway may have implications for its digital descendant in 2H (second half of the year).”
McGlone, however say that if Bitcoin could break away from the Nasdaq 100 (NDX), it could lead to wider adoption that would help the king crypto perform stronger during a recession.
“Bitcoin may need to untie the Nasdaq link – Since it first hit $20,000 about six years ago, Bitcoin has gained about the same as the Nasdaq 100 Stock Index through July 10. at the current level of about 2x the index. What stands out about our image is what has changed:
Bitcoin’s annual volatility has fallen to 2x that of the Nasdaq from more than 8x in 2017, and the Bitcoin/Nasdaq ratio has been decoupled from its former connection to the yield curve. Liquidity leaving the system and recession are typical implications of US Treasury yields falling about 120 basis points below Fed Funds rates, the most since 1989. Widespread adoption may depend on Bitcoin demonstrating that it can outperform the Nasdaq, especially in a recession.
McGlone also highlights how Bitcoin spot exchange-traded funds (ETF) approval could provide BTC with a significant tailwind during a recession, but it’s unclear when the U.S. Securities and Exchange Commission (SEC) will make a decision on the pending applications.
“US ETFs are a tailwind for crypto, but the timing is uncertain.”
Bitcoin is trading at $30,369 at the time of writing, down 0.7% over the past 24 hours.
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