Mike McGlone, Bloomberg Intelligence’s senior macro strategist, says one major factor has made him bearish on the crypto markets.
In a new interview with crypto analyst Scott Melker, McGlone says the high interest rates currently offered on US Treasury Bills (T-Bills) are sucking liquidity out of the crypto markets.
T-bills are government short-term debt obligations that are sold at a discount, with the difference between the purchase price and face value being accrued interest. T-bills from four weeks to one year have recently been auctioned at over 5% interest. He also says that one indicator of a liquidity drain is the declining market cap of stablecoins.
“I also look at stablecoins. It’s a bit of a melting pot right now. Stablecoins were great when you had zero interest rates and you had negative interest rates in much of the rest of the world. But now the US government gives you 5%. People should always be reminded when pointing out that fiat currencies depreciate over time. Yes they do. But they do pay you interest.
Right now, getting a very good interest rate and getting contractual liquidity and 5% guaranteed on a T-bill, a one-year account, is hard to pass up. And it’s just that sucking sound of money going to Well, thank you, and it’s also the US government re-spending a good chunk of debt that it hasn’t spent in recent months.
That’s just a giant sucking sound for liquid assets, risky assets and what are the riskiest? cryptocurrency. So I just see that this is a bear market tipping back down.
McGlone notes that crypto markets have not faced such macro conditions before and he believes investors will turn to the high-yield T-bills and try to reinvest in crypto after markets fall lower and their T-bills bill interest pays off.
“The main thing is that sucking sound. It’s what crypto has never had before. It’s never had a recession, a real recession. The Fed has never made an effort to deflate commodities and has never had major competition from T-bills. Now they do.
To me, it’s that sucking sound away from speculative digital assets in a bear market versus something where, ‘Hey, maybe I can lock up for a while and be the only person buying everything at a discount in a few years.’ ”
The total crypto market cap is $1.05 trillion at the time of writing, down 0.12% over the past 24 hours.
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