Bloomberg Macro Strategist Warns: US Bonds Draining Liquidity from Crypto and Risk Assets

Mike McGlone, a seasoned macro strategist at Bloomberg Intelligence, is concerned about the current state of the crypto markets.

McGlone mentions a significant factor contributing to his bearish stance in a recent interview with crypto analyst Scott Melker: the attractive interest rates offered by US Treasury Bills (T-Bills), which are syphoning liquidity away from the crypto markets.

T-Bills are short-term government debt obligations sold at a discount, with the difference between the purchase price and the face value representing interest accrued. T-Bills with maturities ranging from four weeks to one year have recently commanded interest rates in excess of 5%. McGlone also mentions stablecoins’ declining market cap as an indicator of the liquidity drain.

“I also observe stablecoins, which are currently facing some challenges,” he adds. When interest rates were near zero or even negative in many parts of the world, stablecoins were popular. However, now that the US government is offering a generous 5% interest rate, people should keep in mind that fiat currencies depreciate over time, but they also pay interest.”

“The current scenario combines a low interest rate with shrinking liquidity.” It’s difficult to resist the allure of a guaranteed 5% return on a one-year T-Bill. This has a draining effect because money flows to these opportunities. Furthermore, the US government is reissuing a significant amount of debt that it had not previously issued, exacerbating the situation.”

According to McGlone, this liquidity drain is especially harmful to liquid and high-risk assets, with cryptocurrency being one of the most affected. As a result, he believes the market is in a bearish phase right now.

Notably, McGlone suggests that investors may eventually reenter the crypto market following a downturn and the realisation of T-Bill interest.

“The sound of money being drawn away is crucial here.” This is something crypto has never seen before: an actual recession, Federal Reserve tightening amid deflating commodities, and significant competition from T-Bills. These are new difficulties.”

“In my opinion, this sucking sound represents a shift away from speculative digital assets in a bear market and towards the possibility of taking advantage of future discounted opportunities by investing in T-Bills and waiting patiently.”

At the time of writing, the total crypto market cap is $1.05 trillion, a 0.12% decrease over the previous 24 hours.

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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.