Cryptocurrency prices may experience a general decline in the coming weeks. So thinks Mike McGlone, senior macro strategist at Bloomberg Intelligence. According to him, one element in particular could explain this decline to come.
The Federal Reserve’s murky role in the value of crypto assets
Within the framework of his traditional analyses, Mike McGlone thinks that the US Federal Reserve could influence the price of crypto assets depending on its future actions.
Although a risk of recession looms on the horizon, the continuation of the policy of raising interest rates in an effort to dampen inflation will have adverse consequences for the crypto market. Indeed, the Fed would in this case play a role of catalyst which would drive Bitcoin as well as risky crypto-assets lower.
In this situation, those who will be sheltered from possible market fluctuations are the investors who will have bought and held cryptos while waiting for the end of the bear market.
The question, then, remains whether the drop could drag the cryptos into a bigger drop than what they experienced during the 2022 bear markets. It’s a thought that makes sense according to the strategist who wonders if cryptos hadn’t bottomed yet.
McGlone thinks the recent rebound in crypto and equity prices may have weakened the market which could take a dive again like in 2022. He adds that amid high recession risk, coupled with Fed tightening policy, the downward pressure could quickly become extremely strong.
Bitcoin could prove resilient
Faced with the persistent risk of a price drop in the crypto asset market, the resilience of Bitcoin could be called into question. According to McGlone, if BTC reaches $25,000it will have reached a key price that will demonstrate its resilience despite the Fed’s monetary policy tightening.
Federal Reserve rates rise over time to keep up with inflation. From zero a year ago, Fed rates are currently 5%. Moreover, there is no guarantee that they will not increase further in the future. This is a detail that does not seem to be taken into account by investors.
However, an unfavorable monetary policy for which we cannot see the end of the tunnel should prompt caution. It might be appropriate to adopt a defensive position on the market while waiting for the situation to settle down.