This analyst reveals the catalyst for the decline in crypto prices

Mike McGlone, senior macro strategist at Bloomberg Intelligence, outlined the primary catalyst for the decline in Bitcoin and Crypto prices. In his recent analysis of digital assets, McGlone cited the US Federal Reserve’s hawkish anti-inflation strategy as the primary factor that could exert downward pressure on risk assets such as digital assets.

The analyst noted that the crypto bear market is far from over, while advising buy-and-hold investors to seek protective insurance against asset devaluation. He also said the recent pullback in digital assets made them susceptible to future price declines.

Fed Rate Hike: The Primary Catalyst for Crypto Market Decline

While analyzing the recent financial market downturn, McGlone addressed the Fed’s insistence on raising interest rates despite the strategy’s potential to cause a recession in the economy. According to McGlone, crypto-assets and stocks haven’t seen their lowest levels yet.

This statement suggests that the worst is yet to come and cryptocurrency prices may drop even further when The Federal Reserve implements next basis point (bps) in its interest rate increases.

The Bloomberg analyst said the stock market, including crypto, is one of the world’s most energetic forces during the downturn. And the Fed’s monetary tightening amid high recession risk is a strong catalyst for this decline. He cited $25,000 as the primary support level for Bitcoin while adding that March will decide the fate of crypto prices.

Whether cryptocurrencies, including Bitcoin, maintain their pivot levels depends CPI data coming out in March. The CPI data will determine how hard the recession is hitting consumers and how much the Fed’s tightening has weighed on inflation.

If the CPI data comes out low, market sentiment will improve while crypto and stock prices rise. However, if the index is high, investor sentiment will plunge even deeper and cause a massive price decline across the stock and crypto markets.

Digital assets haven’t bottomed out yet, analyst says

McGlone’s analysis suggests that the 2022 declines recorded by Bitcoin and other crypto assets may not be their bottom. More danger could be looming with the Fed’s further tightening in March. In the report, McGlone further noted that markets appear to be underestimating the lagged effects of monetary policy, which should be a good reason to be defensive.

As McGlone cited, the federal funds rate was zero a year ago and is rising now. He noted that risk assets such as Bitcoin will have to prove resilience in early March, as the federal funds rate is now approaching 5%. Since Bitcoin failed to hold the key support level of $25,000 in early March, chances are high that higher interest rates will push it down further.

Featured image from Pixabay, chart from TradingView.com