tl;dr
Bloomberg's Mike McGlone warns crypto faces a major downturn if U.S. equities correct, comparing current risks to the 1999 internet bubble and highlighting Bitcoin's vulnerability against gold.
**Bloomberg’s Mike McGlone Warns Crypto Faces Downturn Amid Equity Correction Risks**
Bloomberg’s senior commodity strategist, Mike McGlone, has issued a cautionary warning about the cryptocurrency market, suggesting that digital assets could experience a significant price downturn if U.S. equities undergo a correction. In a recent interview with Kitco News, McGlone highlighted the growing risks of overvaluation in the crypto space and its increasing correlation with traditional financial markets.
McGlone emphasized that the current state of crypto assets mirrors the speculative excesses of past market bubbles, particularly drawing parallels to the internet boom of 1999–2000. “It’s just a classic indication of a market that’s gone too far,” he said, noting that crypto’s correlation with the stock market is now at its highest level ever. He pointed to a 48-month (four-year) cycle, noting the correlation coefficient has risen to around 0.6, compared to a negative value in 2020.
**Risk-On vs. Risk-Off: Crypto’s Vulnerability**
McGlone described crypto as a “risk-on” asset class, meaning it tends to thrive in environments of investor optimism and economic growth. In contrast, gold is seen as a “risk-off” asset, traditionally acting as a safe haven during market downturns. However, despite the stock market’s 15% year-to-date gain, McGlone warned that any reversal in equity performance could trigger a sharp selloff in crypto.
“If we just give back some of those gains, you’re going to see the truth about unlimited supply, massive hubris, and speculative excesses [of crypto] that reminds me of the internet bubble in 1999 and 2000, just many times more,” he said.
**Bitcoin’s Struggles Against Gold**
A key focus of McGlone’s analysis is the Bitcoin-to-gold ratio, which measures how many ounces of gold are needed to buy one Bitcoin. Currently, the ratio stands at 29.5, meaning 29.5 ounces of gold are equivalent to one Bitcoin. This metric has fluctuated significantly, peaking at 40 during the 2016 U.S. presidential election and hitting a low of 25 earlier this year.
McGlone argues that the ratio is a leading indicator of broader market sentiment. “The risks are that this goes back below 25 as we find out that this has been a great leading indicator for the stock market and risk assets,” he said. He predicts Bitcoin will underperform gold in the coming period, as the latter’s role as a safe-haven asset gains traction amid potential market turbulence.
**Implications for Investors**
McGlone’s comments underscore the growing interdependence between crypto and traditional markets, a dynamic that could amplify volatility for investors. While crypto has seen explosive growth in recent years, its susceptibility to equity market corrections and overvaluation concerns may lead to a reckoning.
As the financial landscape evolves, McGlone’s insights serve as a reminder of the importance of diversification and caution in the face of speculative frenzies. For now, the crypto market remains a high-risk, high-reward proposition, with its future closely tied to the stability of the broader economy.
In an era of unprecedented market complexity, investors would do well to heed the warnings of seasoned analysts like McGlone, who see both the potential and the peril in the digital asset space.