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Mike McGlone, senior macro strategist at Bloomberg Intelligence, reveals the main catalyst behind the Bitcoin and crypto price downturn in a new analysis. In the report on digital assets, McGlone cites the Federal Reserve’s aggressive anti-inflation strategy as the main factor putting downward pressure on risky assets such as digital assets.
The analyst suggests that the cryptocurrency market is far from more – and advises investors who buy and hold cryptocurrencies to hedge against depreciation. Additionally, according to McGlone, the recent recovery in digital assets would make them more vulnerable to future price declines.
Fed rate hike: starting a downturn in the crypto market
Analyzing the recent downturn in financial markets, McGlone addresses the Fed’s demand to raise interest rates – despite the fact that this strategy could lead to a recession. According to McGlone, cryptocurrencies and stocks are not yet at the bottom.
This statement implies that once the Federal Reserve implements the next basis point (bps) in its rate hikes, the worst is yet to come and crypto prices could fall even lower.
A Bloomberg analyst points out: The stock market and cryptocurrencies are among the “most dynamic forces in the world” during their decline. And the Fed’s tightening amid high recession risks is a powerful catalyst for this decline. He mentions $25,000 as the primary support level for Bitcoin, adding that March will decide the fate of crypto prices.
Bloomberg analyst McGlone reveals what triggered the crypto crash
Whether cryptocurrencies, including Bitcoin, can maintain their pivot levels depends on CPI data due in March. The CPI data will show how much the recession is affecting consumers and how much the Fed’s tightening is affecting inflation.
If the CPI data comes out low, market sentiment will improve and crypto and stock prices will rise. However, if the index is high, investor sentiment would drop even lower, causing a huge drop in the stock price and the crypto market.
Digital assets keep crashing, the analyst says
McGlone’s analysis suggests that the 2022 lows recorded by Bitcoin and other cryptocurrencies may not be bottoms. With further tightening by the US Federal Reserve in March, other dangers could emerge. McGlone also notes in the report: Markets seem to be underestimating the weakening effect of monetary policy – which should be a good reason to be defensive.
As McGlone points out, a year ago the federal interest rate was zero — now it’s rising. According to the analyst, risk assets like Bitcoin should have shown resilience in early March as the federal interest rate is now approaching 5%. With bitcoin failing to hold its key $25,000 support level in early March, higher interest rates are likely to continue to push it lower.
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Text credit: Bitcoinist
Last updated on March 6, 2023
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