Bloomberg: Cryptocurrencies Could Face Their First Real Recession

Bloomberg Intelligence chief commodity strategist Mike McGlone warned that “cryptocurrencies could face their first real recession.” The Federal Reserve’s tightening despite the risk of a recession “could be the primary headwind for most risk assets, especially cryptocurrencies,” he added.

“Cryptocurrencies may face their first real recession”

While cryptocurrency market begins to consolidate its bullish progress since the turn of the year, Bloomberg Intelligence (BI), the analytical arm of Bloomberg, last week released its outlook for cryptocurrencies for February 2023. BI Chief Commodity Strategist Mike McGlone stated:

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

"The last major economic downturn in the US, the financial crisis, led to the birth of Bitcoin, a possible upcoming economic reset may mark similar milestones," he added.

When comparing the historical performance of cryptocurrencies and stock market The commodities expert explained that “the key question is how much price pain will there be before longer-term gains are restored,” and provided a chart showing the Nasdaq 100 at parity with Bitcoin’s 200-week moving average. based on the history of American recessions.

With this in mind, McGlone further emphasized that:

In 2022, the index bottomed out at almost 70 % below this average, and in 2009 it fell by about 40 %. We do not expect the crypto market to be spared if the inflow into risky assets continues to recede.

Fed tightening “could be a primary headwind” for cryptocurrencies

“Central bank actions have repercussions and most risk assets fall in recessions. That could spell trouble for cryptocurrencies, which are among the riskiest,” he noted. “The bottom for cryptocurrencies could have come with the demise of FTX, but there is also a possible scenario that is more like the collapse of Lehman Brothers, where the low was much lower about 6 months later.”

The message continues:

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

“The pandemic was a major disruption that could affect markets for years. It sparked the largest fiscal and monetary pump in history, and it is still in the process of dumping,” the report adds.

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All content in this article is for informational purposes only and does not in any way serve as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.