(Kitco News) – The cryptocurrency market has been performing well thus far throughout 2023, but caution is warranted in the near term, according to Bloomberg Intelligence’s senior macro strategist Mike McGlone. He recently suggested that the market may be due for a sizable correction.
McGlone shared the comments in a post on Twitter, telling his followers to not blame a $2,000 price for Ether (ETH) and a $30,000 price for Bitcoin (BTC) if risk assets peak.
“Markets may be in the early days of adjusting to #disinflation, which is normal in #recessions, but the #FederalReserve may never loosen with the ease it has in the past,” McGlone said. “Enduring deflation could be reciprocal.”
McGlone included in his tweet a snippet from his latest market update and a graphic comparing ETH/USD and the Nasdaq 100.
“Ethereum at about $2,000 has acted as a pivot since 2021 and may mark key resistance in 2023,” McGlone wrote. “Since its brief dip below $1,000 in June – just prior to the switch to proof of stake – its ceiling has been around $2,000.”
ETH/USD vs. Nasdaq 100. Source: Twitter
“Our graphic shows the strong relationship with the Nasdaq 100 Stock Index – 13,566 is its highest weekly close since ETH peaked at about $2,000 in 2H,” he wrote. “Bumping up against that ETH level on April 12 may represent renewed bull markets or bear bounces ripe for tilting downward.”
McGlone added that the “rules of long and variable lags to monetary policy and risk vs. reward puts our bias toward losses with an almost unprecedented headwind: US bank deposits are falling at the fastest pace in our database since 1971. It may be illogical to expect an end to the bank crisis with the Fed still tightening.”
A follow-up post from McGlone delved further into the topic by comparing ETH/BTC, the NASDAQ and the Federal Reserve money supply.
McGlone cited a quote from former Federal Reserve chair Ben Bernanke to emphasize his point: “The main factor depressing aggregate demand was a worldwide contraction in money supplies.”
“This from former Federal Reserve chair Ben Bernanke’s ‘Essays on the Great Depression’ may pertain to current markets,” McGlone wrote. “That the Dow Average dropped about 50% in 1929 peak-to-trough then rallied about the same percent to the 1930 peak may have implications for bouncing risk assets in 2023. Money supply is contracting and the Fed is still tightening – despite deflating commodities.”
Nasdaq Rollover vs. S&P 500 and Ethereum/Bitcoin. Source: Twitter
The Bloomberg strategist included the above graphic showing the Nasdaq 100 “potentially rolling over vs. the S&P 500” to highlight his point.
“Money is falling at the greatest pace in our database since 1959,” he said. “Traded 24/7, the Ethereum/Bitcoin cross may be a leading indicator for risk assets with similarity to the implications of Nasdaq performance for the border stock market.”
While McGlone is warning that Bitcoin and Ether may be due for a pullback in the near term, he thinks gold stands to be the biggest beneficiary of the ongoing financial turmoil.
“I think it’s inevitable that gold gets above this $2,000 an ounce level and never looks back,” McGlone said in an interview with Yahoo Finance on Friday. “And the key catalyst is the stock market potentially rolling over. I see this as just the catalyst for gold to take off. It’s one of the few commodities I’m really bullish on because everything’s starting to tilt downward towards deflationary trends. Deflation in fossil fuels is encouraging inflation in gold. And I think that’s just starting to kick in and excel.”