- Mike McGlone of Bloomberg Intelligence sees similarities between Bitcoin’s behavior and the 1930 stock market crash.
- The Federal Reserve has hiked interest rates to a 22-year high to combat ongoing inflation in the U.S.
Bitcoin and the Shadows of the Past
Diving deep into market patterns, Bloomberg Intelligence’s Mike McGlone, a distinguished senior commodity strategist, recently sparked discussions with his observations about Bitcoin’s movement. McGlone intriguingly draws parallels between the present behavior of the digital asset and the stock market of the 1930s.
The 1930s Stock Market and Bitcoin: A Comparative Look
In a thought-provoking tweet, McGlone pointed out:
“One of the best-performing assets in history and a leading indicator — bitcoin — appears similar to the stock market in 1930.”
To underline his assertion, he touched upon the historical context. During the 1920s, despite voices of caution like statistician Roger Babson, the overall sentiment in the market was optimistic. Babson, in September 1929, had presciently cautioned at a National Business Conference in Massachusetts about an impending crash that could dramatically dip the leading stocks. Contrasting this, economist Irving Fisher had confidently pronounced a ‘permanently high plateau’ in 1929.
Such market dynamics are essential to consider, especially when juxtaposing them against the backdrop of Bitcoin’s performance. McGlone highlighted the concerning signals, emphasizing the Federal Reserve’s actions,
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“The Fed tilts our bias toward a stance similar to Babson’s.”
Diving into the annals of history, the Dow Jones Industrial Average witnessed a staggering increase, surging nearly six-fold from sixty-three in August 1921 to a dizzying 381 by September 1929. Yet, this meteoric rise soon faced a grim downfall. Between April 1930 and July 1932, the Dow plummeted, registering a loss of 89.2%. The aftershock of this calamitous decline, famously dubbed the Great Crash, paved the way for the Great Depression, which gripped the globe for nearly a decade.
Modern financial instruments and global interconnections, combined with the decentralized nature of cryptocurrencies like Bitcoin, make today’s economic landscape more complex. However, historical analogies, as pointed out by McGlone, offer both cautionary tales and food for thought.
In the present, the Federal Reserve’s actions have rippled across the financial spheres. Battling persistent inflation in the U.S., the Federal Reserve has taken an assertive stance. Interest rates were recently hiked to an unprecedented high in 22 years, with the key rate getting a 25 basis points boost, positioning it between 5.25% and 5.5%. And as Fed officials indicate, more such hikes might be on the horizon to align inflation with the central bank’s 2% target.
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