Mike McGlone, Bloomberg Intelligence’s senior commodity strategist, said in his recent post that Bitcoin’s underperformance could be an early warning signal of a broader downturn in the stock market.
The expert outlined that the flagship cryptocurrency has dropped by 15% during the third quarter up to September 1st. In contrast, the Nasdaq 100 Stock Index has gained 2% during the same period.
The next phase of the global crisis will be marked by inflation, no matter what the FED does. For now, people still care about interest rates.
Rate Hikes Won’t Matter Soon
The divergence between Bitcoin and the tech index could indicate an impending recession. “Weakness in the benchmark crypto could be a precursor for a normal stock market drawdown in a recession or simply falling behind,” said McGlone.
He warned that the financial market could expect more volatility. However, given the historical correlation between the performance of Bitcoin and the Japanese stock market index Nikkei, “the benchmark crypto might recover and follow the path of the Nikkei, which reached a 33-year high in June.”
While a rebound is possible, McGlone believes that Bitcoin is likely to continue declining due to the central bank’s tightening monetary policy.
According to the analyst, the Fed will likely raise interest rates as part of actions taken to curb inflation in the coming meeting, which could have a negative impact on Bitcoin and the broader cryptocurrency market.
The next FOMC meeting, where the Fed will decide whether or not they should lift the interest rate, is set for September 19-20. Expectations are currently diverse. Following the “hawkish pause” in June, some experts are inclined toward an unavoidable raise. They attribute this peak to the fact that the inflation rate remains high.
On the other hand, some vote on the second scenario, where the central bank might consider another pause to avoid the risk of a banking crisis and worsening the economic outlook.
However, most observers forecast that the Fed will at least approve an additional hike by the end of 2023; and if it’s not in September, it will come in November or December.
Jerome Powell said that the future decision was still on hold.
Bitcoin Bulls and Bears in a Standoff
Meanwhile, Bitcoin bulls and bears show limited conviction, according to Keith Alan, co-founder of Material Indicators, a science-based crypto analysis firm. Bitcoin is currently trading at $25,736, a 5.% decline in seven days. Bitcoin is currently in its lowest price range since mid-June.
Bullish sentiment has faded after the US Securities and Exchange Commission (SEC) announced the delay of the spot Bitcoin ETF decision. Several Wall Street giants are lining up to file for their own Bitcoin ETFs, including ARK Invest, BlackRock, Fidelity, Invesco, and Valkyrie, among others.
BlackRock’s application in May sent the price of Bitcoin from $25,000 to $31,000, setting a precedent for other big players to follow.
The SEC is under pressure after losing ground to Grayscale in a recent court ruling. The court decision criticized the SEC for its unreasonable rejection of Grayscale’s proposal and requested the agency to review the filing.
Many cryptocurrency insiders anticipate that the approval of the spot Bitcoin ETF could be a game-changer for the market. But JP Morgan’s analysts argued that the products would unlikely have a transformative impact on the cryptocurrency market.
The analysts stated that similar ETFs already exist outside the US but haven’t attracted substantial investor interest. Additionally, Bitcoin funds, whether based on futures contracts or physical Bitcoin, have not gained much attention as of the second quarter of 2021.
Despite controversies, many believe that the approval is imminent and it will bring more institutional investors to the crypto landscape. This development itself presents an uptick in adoption within the industry.