Bloomberg Intelligence (BI) senior commodity strategist Mike McGlone has issued a stark warning: the cryptocurrency market may be entering its first genuine recession since Bitcoin's inception. In BI's February 2023 crypto outlook, McGlone analyzes how the Federal Reserve's tightening amid recession risk could be the biggest headwind for most risk assets, particularly digital currencies.
Cryptos Face First Real Recession
McGlone tweeted: "Cryptos may be facing their first real recession, which typically means lower asset prices and higher volatility." He noted that the last major U.S. economic contraction (the 2008 financial crisis) gave birth to Bitcoin, and the coming economic reset may mark similar milestones. The report's chart shows the Nasdaq 100 at parity with Bitcoin's 200-week moving average, which is relatively lofty based on the history of U.S. recessions. "We don't expect the crypto market to be spared if the risk asset tide continues to recede," the report states.
McGlone draws parallels to the collapse of Lehman Brothers, suggesting that the FTX-driven low may not be the final bottom. "A scenario more akin to the collapse of Lehman Brothers is also possible, where the trough came much lower about six months later," he adds. The strategist emphasizes that crypto volatility will remain elevated, and investors should brace for further price swings.
Fed Tightening Is the Primary Headwind
"Central bank actions have delayed impacts, and most risk assets fall in recessions. That could spell trouble for cryptos, which are among the riskiest," BI noted. The report elaborates: "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."
McGlone describes the pandemic as "a major disruption that may shape markets for years," sparking the greatest fiscal and monetary pump in history, which is still being unwound. Typically, risk assets bottom well after the Fed first eases, which remained "quite distant" as of early February 2023. This suggests continued downward pressure on crypto markets, and investors should remain cautious. Nevertheless, McGlone hints that every crisis may bring new innovations and long-term opportunities.