Mike McGlone, senior macro strategist at Bloomberg Intelligence, warned investors about the potential impact of the liquidity squeeze on the cryptocurrency and Nasdaq markets.
In a tweet published on May 6, McGlone compared the performance of the Nasdaq 100 and Bloomberg Galaxy Crypto Index (BGCI), which tracks top tech stocks and cryptocurrencies, respectively.
He noted that both indices have nearly doubled since November 2017, but also have a high beta and an increasing correlation since the large liquidity injection by the Fed in early 2020, meaning they are sensitive to market movements and act together. noted that they tend to
#Cryptos vs. Soft Landing or Real #Recession. The Nasdaq 100 and Bloomberg Galaxy Crypto Index (BGCI), each up about the same 2x since November 2017, may be vulnerable to the effects of a liquidity rug-pull. pic.twitter.com/STp7fb5hiW
— Mike McGlone (@mikemcglone11) May 6, 2023
McGlone said the Fed's tightening of monetary policy, which raised the fed funds rate from zero at the beginning of 2022 to about 5% on May 2, could pose a threat to markets that benefit from economic stimulus.
He also cited Bloomberg Economics' model that indicates a possible US recession to begin in July and questioned how the crypto and Nasdaq markets would react to such a scenario.
McGlone said that while BGCI has gained 55% so far in 2023, 20% appreciation of the Nasdaq 100 could indicate optional risks. He explained that this means that a soft landing for the economy is somehow priced in, but the potential for an extended contraction is not priced in.
He added that in the event of a severe deflationary recession, cryptos may face more downside risk than stocks.
McGlone is known for his bullish views on Bitcoin and other digital assets, but he also warns of the volatility and uncertainty that comes with investing in this emerging space.
*Not investment advice.
