Bitcoin Market Crash: Why It May Be Only the Beginning

Fears of a global recession are causing chaos in the market. Stocks are plunging and crypto is deep in the red. Some believe it's only a matter of time before the US Federal Reserve steps in to rescue the economy. But how realistic is a V shaped recovery this time around? And how much lower could markets fall before that happens? To find some answers to these questions, I talked to macroeconomic strategist at Bloomberg, Mike McGlone.

So the whole space needs purging just like.com bubble and it's getting it in 2020. Bitcoin was at 10,000 is only a few years ago. I think it's going back there as usual.

This video is for educational purposes and does not constitute financial advice. Also, all views expressed in the video are solely those of our guests. Talking about crypto specifically. Do you think we are in the bear market now?

Yep, we started that when Trump was inaugurated. The Bloomberg Galaxy Crypto Index 200 day moving average is rolling over and heading downward, which is a question how much we get bounces. But we're in a bear market in cryptos, we're in a bear market in a stock market, we're in a bull market in bonds and we're in a bull market in gold. That's pointing out the two of the top risk on assets are bear markets and two of the top risk off assets are bull markets. And it's a great tactical trading environment, but I think it's early days, just getting started and has a very substantial catalyst. Ample reason. That's the the US just cutting off the dependence of the rest of the world, exporting to the US for gaining wealth. That's things that we've been kind of waiting for decades for.

You seem to be looking at a possibility that bitcoin will go down back to its $10,000 level. One user was questioning your outlook and he was saying that a drawdown to 10,000 would be even worse than what we saw when the FTX collapsed. Back then there was like a hostile regulatory environment, political environment around crypto and bitcoin and even then we didn't see such a significant drawdown. Don't you see this prediction as being overly catastrophic?

Nope. I wouldn't make it if I didn't believe it. I made the call when we were at 10,000, 2020 in the back of the biggest money pump in history. We'd go to to 100,000 by 2025. I'm just making a call. We do a little mean reversion. The key thing about being a strategist and not Having positions is you get used to people having comments like that. And in 2020 Bitcoin was at 10,000. It was only a few years ago. I think it's going back there. The key thing is you have to think about here is Trump's tilt. Put, put in the top. Trump's I would say switching his, you know, going from a zealot from the antagonist is put in the peak. And what it did was it created massive excess of supply. There's excess of supply and speculative excesses in this space akin to things I've never seen before. Maybe a little bit like the dot com bubble. And let's look at the number two, cryptotherium. It's right at the time we're speaking, which is in the morning of 20, April 7th, it's about $1,500. The peak was 4,000. When Trump said that it's probably going back to a thousand which means it would flip in tether. It would become tether would be the next most widely traded crypto. The key thing that most crypto people are getting. First of all, I've never made a call without being called an idiot. And being right, if everybody agrees with you, it's almost always wrong. And this has been just part of the. It emboldens my views and that's part of the reason I say it because I know that person's long. I know they have a vested in the market going up and they probably made a lot of money. And that's just one thing. All our listeners and viewers have to think to themselves what am I holding and why and what, what's the relative valuation of this? So the whole space, let's look at one example is Dogecoin. Dogecoin still has $20 billion of market cap. It's basically a joke. It should go to zero. Look at and that's just one of the 13,000. You look at things like Shiba Inu, it still has 7, almost $7 billion of market cap. So the whole space needs purging just like.combumble did. It's getting it and it's just a question of how long it lasts. And when the stock market becomes the economy, then it's a problem. And I have to say that because the whole crypto rally has been coincided with this big rally in the stock market. Now it's all rolling over. We see that for good reason. There are going to be bounces, there's going to be sharp short covering rallies. In fact, even today we could end up on the day in the market. But overall it's purging the excesses. So yes, I will stick with that view and I'm willing to eat it if I'm wrong. But I think it's a good chance Bitcoin can go to back to 10,000.

There is an expectation from certain market participants that eventually Jerome Powell from the, from the Fed will be forced to rescue the economy and prevent the economy from falling into a recession. And he will cut interest rates, pump liquidity into the markets as we saw back in 2020 with the COVID pandemic. And at that point bitcoin together with most other assets will skyrocket back up. You don't see this as a scenario happening anytime soon.

What we anticipate generally does not occur. That's been the narrative since 1987, that trade has been extended when you get to two times GDP, which we did market capitalization, the stock market becomes the economy. So let's look at what happened with the Fed's kind of stuck right now. They pointed it out. We have last year we created $12 trillion of stock market wealth. Now we've just wiped that out. But that $12 trillion in stock market wealth kept inflation and spending high and above inordinate inflation sticky. Fed can't ease anymore. They're out of the picture. We've had unprecedented fiscal stimulus in this country for decades now, particularly the last few years, pumping money in the system that's been shut off with doge and austerity unprecedented in this country. Now remember some sharks running this government, they're running it like a business and they're cutting off the excess expense. So the fiscal's gone and yeah, the Fed's going to be easing. They're not going to ease in 25 basis points. When they ease, they're going to ease in 50 to 100 basis points. That's the way it works. And just like we did in 1999, the stock market might correct 80 to 90%. I mean that was NASDAQ S&P 550% just like we did in 2008 might correct 50%. The federal ease and then we'll recover. But we haven't even started the process like I said it was. Look at this key thing is look at volatility and vix. Volatility index is bottoming from a similar levels and it bottomed in 2007 just heading higher. If you look at the 200 day moving average, take out the T bill rate because that's a key factor there. And you look at the crypto the Bloomberg Galaxy crypto index, the 200 day mover and just started rolling over. I'm just pointing out early days and I'm pointing out we've had a paradigm shift.

When you talk about this reversion to possibly 10,000, you are talking about a process that is gonna unfold in the next what year or within, within 2025.

It could be the sooner we get it over, the better. That's usually a good sign. It could be 2025. Putting price and time together is very difficult. The key thing is if the US Stock market keeps reverting lower, that's gonna pressure all risk assets. Cryptos are the riskiest. Bitcoin is proving anybody who bought ETFs is learning the hard way. They did not buy digital gold. They bought more of a value of leveraged beta. That's the fact. I'll, I do think I, you know, we're going to have a lot massive volatility, but I don't think the US stock market S&P 500 is going to really stabilize and stay stabilized until around 4000. Right now it's about 5000. In the meantime, there's going to be decent volatility, a lot of trading opportunities. And one thing remember about cryptos, they're, they're trading machines, they're perfect for trading.

Do you believe that this narrative of bitcoin as digital gold has to be sort of revisited?

Yep, we're finding out the hard way. And the macro, on a year to date basis, bitcoin's down about 20% and gold's up about 16%. I think that disparity is going to continue. The bitcoin gold ratio is what, 27x or something? It's going back to 10. It was only there a few years ago. It peaked around 40. That's a ratio I've been watching for since 2011. That's what really got me in this space. What we're seeing is the value of this space is tremendous in terms of crypto dollars to be able to finally transact globally money via like an email. But you don't need highly speculative assets like XRP or Bitcoin to do that. You have crypto dollars, you have tether and usdc. This is what's happening in the space. So it's a lesson I learned in commodities is when you have, you're probably much better on providing, investing in the companies that provide the shovels rather than the actual commodities you're creating. And they're creating so many cryptos now there's just an excess supply.

When we draw a comparison with what happened in March 2020 with the breakout of the COVID pandemic, we also saw back then that there was chaos and uncertainty, which seems to be part of what's going on here in the markets. Back then we saw a V shaped recovery in markets. Can you point out why this time should be different?

The higher plateau, the lessons of too much liquidity and high prices. Back then the US stock market was around 1.2 or 1 point, I think it's actually 1.5 to GDP. We popped up to 2.2 or so to GDP. Markets just got too high. Bitcoin was hovering around 10. It dropped to 5 and rallied up. We created the biggest money pump in history. It's the lesson, the absolute biggest. All the lessons are history. When you create that kind of money pump, you get speculative X's. That's what happens. That's where deflation comes from. Deflation always comes from inflation. Now we're deflating. We've learned the lessons of too much liquidity and inflation. We pumped the system with too much liquidity and you got inflation. We found inflation. So worst thing for everybody. It took the President out of at the time, now he's back in. And its primary goal is to lower inflation, lower yields, lower energy prices. And that's exactly what's happened. Get the Fed to ease. The number one way for the Fed to ease is to get the stock market go down because they learn the lessons of pumping it up. So the plateau's too high. Now, what does that mean? The market has to go lower.

I hope you are wrong. But still, I appreciate your being very honest and realistic. Thanks a lot, Mike.

Okay, thank you, John. It's good talking.