Amidst the volatility of the crypto market, Mike McGlone, senior macro strategist at Bloomberg Intelligence, considers the potential for a significant Bitcoin downturn.
McGlone communicates to his Twitter followers, numbering over 57,800, that Bitcoin still enjoys a nearly 4x increase since the Federal Reserve began a massive money supply expansion amidst the COVID market crash. However, he foresees potential instability for Bitcoin in the face of the current financial environment.
Highlighting the drying up of liquidity and escalating rates, McGlone doesn’t discount a possible mean reversion back to the onset point of Bitcoin’s rally around $7,000. If this scenario materialized, it would signify an approximate 75% decline from Bitcoin’s price at the time of his commentary, standing at $26,889.
McGlone outlines Bitcoin’s historical trend of flourishing amid liquidity and faltering when it recedes. He emphasizes his inclination towards the prospect of Bitcoin honoring its 52-week down-sloping mean. He further notes the Federal Reserve’s steadfastness in tightening policy twice, despite a bank run. This, along with declining copper and crypto prices, seemingly heed this warning, starkly contrasting to the more resilient stock market.
During a conversation with Scott Melker, McGlone dismissed the notion of Bitcoin serving as a risk-off asset similar to gold under the prevailing financial circumstances. He argues that Bitcoin must exhibit a substantial divergence from equities before he considers it a risk-off asset.
He affirms his bullish outlook for gold and at a certain point, Bitcoin. However, he points to the simultaneous rise and fall of all risk assets over the past year as problematic. The glimpses of Bitcoin’s divergence strength have been sparse, according to him. For a conviction in Bitcoin as a risk-off asset, he suggests a significant drop in the S&P 500 without Bitcoin hitting a new low would be a compelling indicator.
McGlone concludes by underlining Bitcoin’s performance in relation to liquidity infusions. Before the substantial liquidity boost in 2020, Bitcoin had an average price of $7,000 in 2019, surging to $60,000. Even at the current level of $27,000, Bitcoin is still 4x its pre-liquidity-pump price, suggesting a potential mean reversion risk. He hints that the current market might not be conducive to holding long positions in any risk assets.
Adding to the aforementioned insights, it seems that Mike McGlone exhibits a cautiously optimistic stance toward Bitcoin as a store of value. His observations about the potential mean reversion back to $7,000 and the market’s current circumstances highlight a more prudent and critical approach to Bitcoin’s prospects.
McGlone further elucidates his perspective on the need for Bitcoin to demonstrate a significant divergence from equities before being accepted as a risk-off asset. This shows his nuanced understanding of Bitcoin’s market position and his expectation for the cryptocurrency to behave independently of traditional market trends to establish its reliability as a store of value.
However, despite warning of possible price dips in the short term, McGlone’s comments reveal an underlying faith in Bitcoin’s enduring resilience. By pointing out that Bitcoin’s current price is still 4x its pre-liquidity-pump average, he underscores the cryptocurrency’s impressive growth, even amidst financial turbulence.
This could suggest that McGlone acknowledges Bitcoin’s potential to act as a store of value in the long term, albeit with caution about its near-term volatility. His observations on Bitcoin’s market performance might indicate that he sees Bitcoin evolving and maturing, potentially moving towards becoming a more established and reliable asset class in the future.