On October 2, Bloomberg commodities strategist Mike McGlone took to the social network X (formerly known as Twitter) to express their concerns about the state of the crypto market.
Although bitcoin (btc) recent surge, McGlone highlighted a disturbing trend and raised the possibility of a cryptocurrency recession.
Factors Behind crypto Market Recession Risk
McGlone pointed out the concept of “positive beta versus negative liquidity” and its implications for the cryptocurrency market.
The Bloomberg senior macro strategist suggested that the weakness seen in the third quarter of 2023 could be a temporary blip in the recovery or a sign of an impending recession.
According to McGlone, the latter scenario is more likely, given that most risk assets experienced profits in 2023, but have since been carried over to the new quarter.
The strategist also drew attention to the actions of central banks around the world, noting that many are tightening their monetary policies despite signs of contraction in the United States and Europe.
Additionally, McGlone highlighted the current real estate crisis in China, which carries deflationary implications. He argued that the relative underperformance of the Bloomberg Galaxy crypto Index (BGCI) may reflect changing conditions for an asset class that has thrived in a zero interest rate environment.
Drawing historical parallels, McGlone mentioned the bitcoin price crashes that preceded Federal Reserve (Fed) takes a turn, implying that cryptocurrencies could serve as leading indicators of broader market liquidity. McGlone suggested that a liquidity revival may be necessary to support the crypto market.
bitcoin Maximalist Identifies Key Factors for Remarkable Market Growth
In addition to McGlone’s forecast, increased regulatory scrutiny and the implementation of strict regulations by governments and regulatory bodies can have a significant impact on the cryptocurrency market.
US regulators have been cracking down on the cryptocurrency market, causing delays in what was expected to be a bull run. Lawsuits filed in 2023 and signs of continued regulatory action by the U.S. Securities and Exchange Commission (SEC) have created uncertainty and restrictive regulations that may dampen investor confidence and contract the market.
Furthermore, economic factors contribute to concerns about a possible downturn in the digital asset ecosystem. Cryptocurrencies are interconnected with the broader economic landscape, meaning that global recessions, monetary policy changes, inflation or deflation can affect the cryptocurrency market and potentially lead to a recession.
On the other hand, some see the largest cryptocurrencies as safe havens during significant declines in the world’s largest economies. bitcoin maximalists, including “The bitcoin Therapist,” assisted by artificial intelligence (ai), have key factors identified necessary for bitcoin and the market in general to achieve notable growth.
These factors include mass adoption, global economic uncertainty, institutional investment, limited supply, increasing transaction volume, technological improvements, regulatory clarity, positive market sentiment, halving events, and a global monetary crisis.
While progress has been made on factors such as global economic uncertainty, limited supply, increasing transaction volumes, technological improvements, and halving events, mass adoption, institutional investment, regulatory clarity, positive market sentiment and a global currency crisis.
The strategist’s comments underline the cautious sentiment around cryptocurrencies despite recent positive movements in the price of bitcoin.
McGlone’s analysis suggests that the cryptocurrency market may face significant headwinds due to changing economic conditions, central bank policies, and potential liquidity challenges.
Featured image from Shutterstock, chart from TradingView.com