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Bloomberg analyst cautioned investors not to bet against the Fed, as he sees markets dropping 10-20%. However, he also sees a silver lining for Bitcoin, but not for altcoins.
On Tuesday, Mike McGlone, the Senior Commodity Strategist for Bloomberg, appeared on the Wolf of All Streets podcast. There, he cautioned both stock and crypto investors against risk bets.
Namely, he believes that the Federal Reserve is serious about raising interest rates. Unfortunately, that’s a move that will likely hurt risk assets, like tech stocks – and crypto.
The number one theme I’ve been using for months now is ‘do not fight the Fed.’ If you’re long risk assets, you are fighting the Fed, and cryptos are the riskiest assets.
Interest rates impact the incentives for investing in different assets. Lower interest rates make risk assets more appealing. However, the Fed is likely to raise rates soon.
I think the party is over. That rally we had since 2008, when the Fed started cutting rates aggressively. Everyone saying the Fed has their backs, and the stock market has been up forever…
He also advised against calling the Fed’s bluff. But, this time, the Fed is serious.
They will jawbone until the markets do their job for them, or they have to just keep raising rates until the markets go backward.
That’s also bad news for crypto. “Broad crypto,” he noted, correlates with stocks.
Powell Is Not Bluffing
McGlone based his prediction on his assessment of Fed Chairman Jerome Powell. Powell has the difficult job of setting interest rates and monetary policy.
Going too high will crash the economy. Going too low will let inflation get out of control. Historically, politicians preferred to have high inflation rather than let the markets crash.
But McGlone thinks that this won’t happen this time. Powell won’t kowtow to political pressure, he believes.
He is the guy who pushed back against Donald Trump. He is also facing the highest inflation in 40 years.
McGlone reminded investors that Powell pushed back against President Trump’s demands to slash interest rates back in 2019 aggressively.
Back then, Powell stressed the Fed’s independence from the government. McGlone thinks that Powell is “emboldened” by his recent reappointment.
I will leave you with this. In his last press conference, he said exactly what I hoped he would say. He said he is looking at how the markets will perceive what he will do 25 years from now.
Powell, McGlone thinks, is thinking about his legacy. And history won’t judge him well if he doesn’t do something about inflation. Moreover, the long-term view on the economy suggests that raising interest rates is responsible.
Bitcoin Beating The Markets?
Higher interest rates will hurt both stocks and especially crypto. He expects most altcoins to perform poorly. Investors will, at some point, have to admit there was rampant speculation in crypto markets.
The bottom line is (cryptos) are the riskiest of assets. There’s massive speculation, I mean the dog coins and even in things like Solana…
However, McGlone thinks there’s a silver lining for Bitcoin. While he expects most cryptos to do poorly, he believes that BTC will still be ahead after the correction.
They will be restrained until the markets tell them they have to stop. And that’s the macro. But I think Bitcoin will come out better off.
That’s because, in his view, Bitcoin won’t stay a risk asset for long. Instead, many investors see Bitcoin as a form of digital gold. If more investors start seeing it as a hedge against inflation, BTC could begin acting that way.
The key thing, remember, is that Bitcoin is the least risky among cryptos. I think it is transitioning from a risk-on to a risk-off asset.
That’s why he believes that Bitcoin will come ahead of the market crash.
Here’s my prediction. The markets finally pull back and we get a 10%, maybe 20% correction. Bitcoin comes out better off. Now, Ethereum potentially too, but the rest of the space we just admit speculation.