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

Bloomberg Intelligence’s senior commodity strategist Mike McGlone has warned that “cryptos may be facing their first real recession.” The Federal Reserve tightening despite the risk of a recession “could be a primary headwind for most risk assets, notably cryptos,” he added.

Bloomberg Intelligence (BI), the research arm of Bloomberg, published its February 2023 crypto outlook last week. BI’s senior commodity strategist Mike McGlone tweeted Sunday:

Cryptos may be facing their first real recession, which typically means lower asset prices and higher volatility.

“The last significant U.S. economic contraction, the financial crisis, led to the birth of bitcoin, and the possible coming economic reset may mark similar milestones,” he added.

Regarding “how much price pain will be before longer-term gains resume,” the report details, “Our graphic shows the Nasdaq 100 at parity with [bitcoin’s] 200-week moving average, relatively lofty based on the history of U.S. recessions,” elaborating:

We don’t expect the crypto market to be spared if the risk asset tide continues to recede.

“Central bank actions have delayed impacts, and most risk assets fall in recessions. That could spell trouble for cryptos, which are among the riskiest,” Bloomberg Intelligence noted. “The crypto low may have come with FTX’s demise, but a scenario more akin to the collapse of Lehman Brothers is also possible, where the trough came much lower about 6 months later.”

The report continues:

Fed tightening despite the risk of recession could be a primary headwind for most risk assets, notably cryptos. Buy-and-hold strategies may benefit at the expense of the more speculative and leveraged, subject to rising volatility typical in bear markets.

“The pandemic was a major disruption that may shape markets for years. It sparked the greatest fiscal and monetary pump in history, and that’s still in the process of dumping,” the report adds. “Typically, risk assets bottom well after the Fed first eases, which remains quite distant at the start of February.”

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