An upcoming Fed “sledgehammer” may crush the prices of Bitcoin and Ethereum, says Bloomberg’s senior commodity strategist Mike McGlone.
In an interview with Kitco News, McGlone explained that anyone looking to figure out the future price moves of crypto assets may need to zoom out and look at the big picture, with an increasingly hawkish Fed spelling potential disaster for the short-term prices of blue-chip cryptocurrencies.
“We have to turn over to the macro big picture and what’s been pressuring cryptos this year and that is the Fed sledgehammer.”
“I think it’s going to be worse than the 2008 correction, worse than the Great Financial Crisis,” he said.
“The Fed started easing in 2007, and then they added massive liquidity. They cannot do that anymore,” he added.
However, McGlone was quick to temper investor fears by reinforcing his long-term bullishness on the crypto industry, predicting that Ethereum (ETH) is very much on track to reach new all-time-highs by 2025.
“Cryptocurrencies are the fastest horse in this race,” he said. “Looking forward into the future, they will continue to appreciate but for now … everything’s going down.”
Fed rate hike: No easing in sight
Some spicier-than-expected US inflation data released by the Bureau of Labor Statistics saw the total crypto market fall a little over 14% (roughly US$114 billion) over the past 7 days.
McGlone addressed the most recent CPI figures, which surprised the market on the downside saying that the Fed bears a heavy burden of responsibility for the current pickle.
“[The Fed] knows now that they are somewhat responsible for this massive inflation,” he said.
McGlone explained that the central bank had injected “too much liquidity in the market” to keep the economy functioning during Covid-related lockdowns. Riskier assets like Bitcoin and Ethereum now have to cool down from their meteoric highs.
Unfortunately for any stimulus hopefuls, McGlone advised that the chance of the Fed pumping some more liquidity into the market is zero to none.
“The Fed will not be easing anytime soon, and … now we have the benefit of knowing the mistakes they made by easing too much,” he said. “The pendulum for risk assets swung too far to one side.”
The numbers align with McGlone here. According to the FedWatch dashboard, investors now say that there’s a 82% chance of a 100 basis point hike at the Fed’s meeting later today.
But what about The Merge?
Crypto enthusiasts and investors alike were looking to The Ethereum Merge for hope in these dark times, with many anticipating a surge of positive price action following the Ethereum network’s upgrade.
“I’m afraid The Merge was too hyped,” said McGlone.
Spelling out a bearish scenario for the price of Ethereum in the short term, McGlone added, “[The price of Ethereum] might go to $1,000, or even get a bit lower.”
In the next five to 10 years, McGlone predicted that digital assets have the potential to “go much higher,” but that like all risk assets, the Fed’s rate hikes would continue to stifle any price appreciation.
In the past McGlone has called for a US$100,000 price for Bitcoin by 2025, and reaffirmed that he very much still stands by his call.
“It’s a matter of time before it gets to $100,000,” he confirmed. “By code, supply is going down … adoption and demand are appreciating … I think it’s going to accelerate.”
At the time of writing Bitcoin is changing hands for a little over US$19,000 a piece, down nearly 6% for the week, while Ethereum has plummeted 14.9% since The Merge, currently trading at US$1,340.
