Bloomberg Intelligence’s senior macro strategist Mike McGlone says that one major factor has him bearish on the crypto markets.
In a new interview with crypto analyst Scott Melker, McGlone says that the high interest rates currently offered on US Treasury Bills (T-Bills) is sucking liquidity out of the crypto markets.
T-bills are short-term government debt obligations sold at a discount, the difference between the purchase price and the face value being accrued interest. Four-week to one-year T-Bills have recently been auctioned off with more than 5% interest. He also says one indicator of a liquidity drain is the declining market cap of stablecoins.
“I also look at stablecoins. It’s a bit of a melting asset at the moment. Stablecoins were great when you had zero interest rates and you had negative interest rates in much of the rest of the world. But now when the US government is giving you 5%. People always need to be reminded of when they point out that fiat currencies decline over time. Yes, they do. But they do pay you interest.
Right now you’re getting a very good interest and you’re getting contracting liquidity and 5% guaranteed on a T-bill, a one-year bill, is hard to pass up. And it’s just that sucking sound of money going to Well, thank you, and also its the US government reissuing a lot of the debt it didn’t in the last few months.
That’s just a giant sucking sound for liquid assets, risk assets, and what are the most risky? Crypto. So I just see this is a bear market tilting back down.”
McGlone notes that crypto markets have not faced macro conditions like this before and he believes investors will turn to the high interest T-bills and look to reinvest in crypto after the markets dip lower and their T-bill interest pays off.
“The key thing is there is that sucking sound. It’s what crypto has never had before. It never had a recession, a real recession. Never had the Fed tightening into deflating commodities and never had major competition from T-bills. Now they do.
To me, it’s that sucking sound away from speculative digital assets in a bear market versus something where, ‘Hey, maybe I can lock up for a little while and be the one person to buy everything at a discount a couple years from now.’”
The total crypto market cap is $1.05 trillion at time of writing, down .12% during the last 24 hours.
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