Mike McGlone, a senior macro analyst at Bloomberg Intelligence, explained (1) the major factor that led to a decline in the price of Bitcoin and other cryptocurrencies.
McGlone mentioned the hawkish inflation-curbing stance of the US Federal Reserve as the major issue that could impose negative pressure on riskier assets like crypto assets in his most recent review of digital assets.
The analyst pointed out that the bear market for cryptocurrencies is not even close to being done, and he recommended to buy-and-hold investors that they get insurance against their assets losing value. In addition to this, he stated that the recent price increases seen in digital assets made them more susceptible to price decreases in the future.
The Main Driving Force Behind the Price Decline is…
McGlone addressed the Federal Reserve’s insistence on rising interest rates despite the fact that this strategy has the potential to produce a recession in the economy while he was discussing the recent decline in the financial market. The McGlone report indicates that crypto assets and stocks have not yet hit their lows for the year.
This comment gives the impression that the worst is yet to come, and after the Federal Reserve executes the next basis point (bps) in its interest rate hikes, the values of cryptocurrencies may fall even farther in the other direction.
The expert from Bloomberg stated that the stock market, especially crypto, is one of the most dynamic forces in the world, even though it is currently in a bear market.
This drop is also largely driven by the Federal Reserve’s decision to tighten monetary policy in the face of growing concerns about a recession. Moreover, mentioning the $25,000 level as the major support level for Bitcoin, he added that March would determine the fate of cryptocurrency prices.
The Consumer Price Index data released in March will determine whether cryptocurrencies, including Bitcoin, can maintain their pivot levels.
The data from the CPI would be used to establish how much of an impact the recession is having on customers and how much of an impact the Fed’s recent policy changes have had on inflation.
If the Consumer Price Index (CPI) data turns out to be lower than expected, the market sentiment will brighten, while crypto and stock prices will spike.
On the other hand, if the index is high, investor confidence will plummet even further, resulting in a significant price drop throughout the stock and cryptocurrency markets.
The Bottom for Digital Assets Has Not Yet Been Reached?
According to McGlone’s analysis, it appears as though the lows that were recorded in 2022 by Bitcoin or other crypto assets may not have been their bottoms. As a result of the Fed’s extra tightening in March, there is a potential for an increased threat.
In addition, McGlone mentioned in the study that the markets appear to be discounting the lagging impacts of monetary policy, which is an excellent reason to take a defensive stance.
As McGlone pointed out, the current level of the federal interest rate is higher than it was a year ago when it was zero.
He pointed out that risk assets such as Bitcoin need to demonstrate their durability at the beginning of March due to the fact that the federal interest rate is getting closer and closer to 5%.
The fact that Bitcoin was unable to maintain its position at its crucial support line of $25,000 at the beginning of March increases the likelihood that increased interest rates will further press it down.