The 25 basis point interest rate cut recently implemented by the FED has had a great impact on global markets, while also bringing with it concerns, particularly regarding cryptocurrency markets.
Bloomberg Intelligence Senior Macro Strategist Mike McGlone argued on the “Milk Road Macro” podcast that markets are living in a “fantasy world” and that investors are overweighting risky assets.
McGlone pointed out that Fed interest rate cuts are not always a positive signal for stocks, citing the more than 50% declines in the S&P 500 following interest rate cuts in 2001 and 2007.
The strategist, who specifically categorizes cryptocurrencies as “risky assets,” stated that while the gold market continues its upward trend, cryptocurrencies are more vulnerable in this environment. Recalling his previous prediction that Bitcoin could fall to $10,000 by the end of 2025, McGlone claimed that current market valuations are unsustainable.
According to McGlone, the overpriced nature of the market is also putting pressure on the Fed’s policies. While the Fed’s initiation of interest rate cuts is generally considered a positive indicator for the gold market, it could signal a long-term correction for riskier assets like stocks and cryptocurrencies. McGlone stated, “There’s a lot of speculation in the cryptocurrency market, thinking ‘everything is going to go up.’ While there was only one cryptocurrency in 2009, there are now 21 million. This could be a sign of a major bubble in the market.”
The strategist noted that current inflationary cycles are usually followed by a deflationary period, and that deflationary trends in countries such as Japan and China could also be a sign for the US.
McGlone believes markets are “nearing the end of the risk-on asset rally” and expects a significant market normalization over the next three months. He warned that this normalization process could have devastating effects, particularly on overvalued cryptocurrencies.
McGlone argued that the Fed’s interest rate decisions are made under political pressure, and that this could create a “bubble” in the markets. He considered the recent high correlation between Bitcoin and other cryptocurrencies and the stock market, noting that cryptocurrencies are “risky” assets with high volatility and can experience significant declines during periods of risk aversion.
*This is not investment advice.