Bitcoin’s “True Test” Imminent, Cautions Bloomberg Analyst

In a recent warning, Bloomberg Intelligence’s senior macro strategist, Mike McGlone, has shed light on an impending challenge for Bitcoin (BTC) in the latter half of 2023. As the world’s leading cryptocurrency continues to ride a wave of success during the first six months of this year, McGlone predicts a turbulent period ahead, with tough recessionary conditions poised to test Bitcoin’s resilience. 

In a falling stock market, can Bitcoin become “digital gold”? Read analyst views.

Highlighting the potential decline in the stock market, McGlone argues that this crucial phase will serve as a litmus test for Bitcoin’s credibility as a store of value, often referred to as “digital gold.” The key question arises: Will Bitcoin manage to remain steadfast while equities falter? 

The Test of Digital Gold: Bitcoin’s Second Half Dilemma

During the first half of the year, Bitcoin witnessed an impressive 84% gain, outperforming even the Nasdaq 100. Furthermore, its risk-adjusted volatility remained consistent with historical patterns. However, it is the second half that McGlone believes will define Bitcoin’s role as either a high-beta version of the stock market or a true digital gold in a world where such assets are increasingly sought after.

“Our bias is somewhat in the middle,” states McGlone. “We view a true test of Bitcoin is likely to come when the stock market enters a bear market at some point, typical in US recessions.”

However, the analyst also cautions that the current economic landscape differs from previous recessions, as central banks may be hesitant to ease monetary policy due to stubborn inflation. In the past, during major economic contractions, the S&P 500 experienced drawdowns of approximately 50%, accompanied by substantial central bank intervention. But this time around, the Federal Reserve’s stance on easing measures remains uncertain, given the persistent inflationary pressures. 

Bitcoin’s Make-or-Break Moment

In the second quarter of this year, a weakening crypto market was already exposed, as equities gained ground while major digital assets, tracked by the Bloomberg Galaxy Crypto Index (BGCI), suffered a decline. The analyst notes that this divergent weakness in the crypto market, with the BGCI dropping 2% compared to the Nasdaq 100’s 15% gain, signals potential challenges ahead. 

With the backdrop of Bloomberg Economics’ recession predictions and an expected rise in US unemployment rates, headwinds appear to be gathering for Bitcoin and other risk assets. McGlone’s cautionary outlook emphasizes the significance of the second half of 2023 for Bitcoin’s future trajectory.

At the time of writing, Bitcoin is trading at $30,415, showing a modest 1.2% increase over the past seven days. However, it is crucial to remember that the cryptocurrency market is notoriously volatile, and the actual outcome may differ from these predictions. As Bitcoin braces for its true test, market participants will closely watch its ability to weather the storm and potentially emerge as a reliable digital store of value in an uncertain economic landscape.