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Crypto sell-off: ‘We’re finding out who’s wearing clothes,’ strategist says

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Bloomberg Intelligence Commodity Strategist Mike McGlone joins Yahoo Finance Live to discuss recent volatility in bitcoin, the Terra stablecoin collapse, the effect of Fed policy, and the outlook for crypto.

Video Transcript

AKIKO FUJITA: One of the other things we're watching today is Bitcoin. It is headed for a record seventh consecutive weekly loss, despite seeing a bit of a bounceback today. It is above the $30,000 handle. It has been a brutal week for crypto broadly, to put it mildly, with investors rushing for the exits following the collapse of stablecoin, Terra. Let's bring in Mike McGlone. He is Bloomberg Intelligence commodity strategist. He's here to discuss all of the moves that have happened this week. Mike, let me just get your thoughts. Where are we right now in this space?

MIKE MCGLONE: Well, I think the thing to remember about Bitcoin is first of all you mentioned 30,000 is very good support but it's going down with the ebbing tide with all risk assets. What happened to the S&P 500 this week, it finally got below 4,000 for a while. It's steadying around 4,000. But for the first time in about two years, both Bitcoin and the S&P 500 came back to their 100-week moving averages. And the question I like to point out looking forward in the future, do we expect this nascent technology asset to stop outperforming the broad markets?

And I think that's the opposite. I think you're going to see more responsive buying below the market in Bitcoin and selling above in the stock market. And that's playing out. But you have to remember, the asset that went up the most the last five, 10 years is going to come back as the Fed hammers down and takes away the punch bowl. But it's more likely to come out ahead. And I think that's what you're seeing this week.

BRIAN CHEUNG: Hey, Mike, it's Brian Cheung here. Great to chat with you. Let's take away the technical analysis and kind of the numbers for a brief moment. You have a lot of the commentary around the action that we've seen in the crypto space last two weeks as, perhaps, is this a Lehman moment? We know that Luna and Terra is not necessarily systemic to especially not the financial system, but maybe not even to the stablecoin space. But look, when you see Tether, which is supposed to be keeping that dollar peg, blanked yesterday in the morning, that's got to give you some concern, doesn't it?

MIKE MCGLONE: And that's a lesson I've learned about Tether, Brian, is any time you see knockbacks on Tether, it's usually a short-term blip in the market in Bitcoin and a long-term enduring bottom. The best example was 2018 or '19, April, when New York Attorney General came down on Tether. It broke the buck for a little while. Bitcoin hovered around 5,000. And then it established an enduring support. I see similar things happening at around 30,000. The key thing to remember about Tether, it's the most widely traded crypto asset on the planet. It typically doubles the volume on a normal day that Bitcoin does.

And why? Because the world has found a better way for that buggy. It's got a car now in terms of transacting dollars globally. Yes, it's imperfect. And yes, what we're finding out is that kind of the tide went out. We're finding out who's wearing clothes in crypto, as we're purging some of those speculative excesses, most notably in Terra USD, which was an algorithmic stablecoin. I like to call them crypto dollars because they all track the dollar.

But the point is what comes out ahead from this. And this is typically what happens in this space. You see these pretty significant flushes. It's a new technology. You purge them a little bit, and then you reset. I think we're going to get towards that point of reset. Now, Bitcoin is the key focus. And remember, what Bitcoin is doing, it's well on its way becoming global digital collateral. And it's going back to a good support within an enduring bull market. I look at it as an investor what should I want to do here. Probably, I think we're seeing investors being responsive buyers.

AKIKO FUJITA: Mike, you know, I know with Bitcoin, we've talked so much about so many different correlations. And they never seem to really stick, but I will say, at least in this latest selloff that we've been seeing, it has moved right in tandem with the equity space. What do you think that says about, number one, who's exiting? Is it really just about an overall risk-off sentiment, or is this something more?

MIKE MCGLONE: Clearly, the former. Overall risk-off, the key theme for me at the beginning here is, don't fight the Fed. The Fed is selling calls. They need risk assets to go down to reduce the ability for people to buy stuff, or inflation won't going down. And some of their riskiest, most speculative assets were cryptos. So what we're doing is finally purging the things like the dog coins and the Shiba Inus. That was overdue. And then we're coming back to what's really building in infrastructure and what's really happening. To me, that's what's happening with Bitcoin and Ethereum.

So you hear about things like NFTs and tokenization. That's all being made happen by Ethereum. Now Ethereum's come back to good support around 2000 $2,000. Bitcoin's back to good support around $30,000. I think the key thing to remember, if this stock market keeps going down, which is likely, which because the Fed needs it to go down to reduce inflation, Bitcoin and Ethereum will go down, but they'll come out ahead.

And the key fact I like to point out is, overall, the volatility of these nascent crypto assets, most notably Bitcoin, has continued to decline versus the stock market. That's what's happened with Amazon when it first came out. You know, remember, its volatility in 2009 was about the same as Bitcoin is now. And look where it is now. To me, that's what investors are looking forward to the future. And it's, do you really want to miss out on this revolution? And that's what I see happening. A little bit of selling offers in the stock market and bids below and things like Bitcoin and Ethereum.

AKIKO FUJITA: Mike, always good to have you on. Happy Friday. At least, we can say that for once today.

MIKE MCGLONE: Thank you. You, too.

AKIKO FUJITA: Mike McGlone, Bloomberg Intelligence commodity strategist.