Mike McGlone, a senior commodities strategist at Bloomberg Intelligence, pointed out that elevated equity valuations, coupled with the possibility of further interest rate hikes by the Fed, are generating significant sell signals for Bitcoin ($BTC).
He observed that over the last five years, Bitcoin’s performance has been comparable to that of the S&P 500 index; however, $BTC shows around three times the volatility.
Describing Bitcoin as a highly speculative and volatile digital currency, McGlone indicated that $BTC has a strong correlation with the stock market and faces competition from numerous other cryptocurrency assets. He suggested that from the perspective of risk and portfolio management, Bitcoin presents a troubling case, delivering returns similar to the S&P 500 while exhibiting about threefold the volatility.
McGlone, noting Bitcoin’s inception following the 2009 global financial crisis, stated that it could influence the market during a potential downturn, similar to its previous role during the ascent of riskier assets. He identified three primary factors that heighten the downside risks for Bitcoin: $BTC facing resistance around the $80,000 mark during its recent surge, the anticipation of roughly 70 basis points of Fed interest rate hikes in the upcoming year within futures markets, and the S&P 500 trading at notably higher levels than its 200-week moving average.
According to McGlone, Bitcoin typically moves in tandem with the S&P 500, particularly during times when market risk appetite decreases. He regards $BTC as a high-beta asset that closely follows stock market trends.
He also presented a rather stark long-term bearish outlook. The analyst foresees Bitcoin potentially sliding towards the $10,000 level, a crucial zone it has approached on multiple occasions. One significant factor that could instigate this scenario is a continual drop of about 20% in the S&P 500.
Nonetheless, McGlone emphasized that for this negative scenario to be nullified, Bitcoin must decouple from stock market movements and consistently show strong performance. He argued that $BTC‘s capability to hold its ground, especially amid a possible decline in the S&P 500, would bolster the idea that Bitcoin is evolving beyond just a high-beta risk asset.
*This does not constitute investment advice.