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Cryptocurrency May Experience Long-Term Adjustments Due to Tight Liquidity

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According to reports, Bloomberg warned that due to the central bank\’s tight liquidity situation, cryptocurrencies may experience long-term adjustments. The sharp decline in M2 mone

Cryptocurrency May Experience Long-Term Adjustments Due to Tight Liquidity

According to reports, Bloomberg warned that due to the central bank’s tight liquidity situation, cryptocurrencies may experience long-term adjustments. The sharp decline in M2 money supply and bank deposits means that liquidity continues to be squeezed. Mike McGlone, senior macro strategist at Bloomberg Intelligence, said that risky assets typically rise and fall with the support of liquidity and declining US money supply, while bank deposits indicate that cryptocurrencies are facing a headwind. It may be illogical to expect the stock market, crude oil, copper, and Bloomberg Galaxy Cryptocurrency Index (BGCI) to maintain their recent rebound. The year-on-year measures of money supply and commercial bank deposits have decreased by about 2%, which is the highest value in our database since 1959. Most central banks are still tightening policies, which may indicate a lower plateau for BGCI. Our view is that Bitcoin is facing a headwind, but it will eventually transition to a trading mode more like gold and treasury bond.

Bloomberg analyst: It may be illogical to expect BTC prices to maintain their recent rebound

Cryptocurrencies have seen significant growth over the past few years, but according to reports from Bloomberg, this growth may face long-term adjustments due to tight liquidity in the market. Central banks around the world are tightening their monetary policies, which could potentially have a negative effect on the cryptocurrency market.

Tight Liquidity Squeezes Cryptocurrency Market

The sharp decline in M2 money supply and bank deposits means that liquidity continues to be squeezed. Mike McGlone, senior macro strategist at Bloomberg Intelligence, said that risky assets typically rise and fall with the support of liquidity, and declining US money supply indicates that cryptocurrencies are facing a headwind.

A Lower Plateau for BGCI

It may be illogical to expect the stock market, crude oil, copper, and the Bloomberg Galaxy Cryptocurrency Index (BGCI) to maintain their recent rebound. The year-on-year measures of money supply and commercial bank deposits have decreased by about 2%, which is the highest value in our database since 1959. Most central banks are still tightening policies, which may indicate a lower plateau for BGCI.

Bitcoin Facing a Headwind

Our view is that Bitcoin is facing a headwind, but it will eventually transition to a trading mode more like gold and treasury bond. Cryptocurrencies have been seen as a speculative investment, and with the current market conditions, there may be a trend towards trading instead of investing in it as a long-term asset. Bitcoin may see a decrease in value in the short term, but it could eventually become a more stable and reliable trading option.

The Future of Cryptocurrencies

The future of cryptocurrencies is uncertain, but it is clear that the market will need to adjust to the changing financial landscape. With central banks tightening their policies, cryptocurrencies may face difficulties in maintaining their current growth. However, as the market adapts and matures, it may transition into a more stable and reliable option for traders.

Conclusion

The current market conditions for cryptocurrencies are challenging, but they may eventually transition into a more stable and reliable trading option. The market will need to adapt to the changing financial landscape, and cryptocurrencies may need to become less speculative and more focused on trading. Only time will tell how cryptocurrencies will evolve and adapt to these changes.

FAQs

1. What is contributing to the tight liquidity situation in the cryptocurrency market?
Central banks around the world are tightening their monetary policies, leading to a decline in M2 money supply and bank deposits.
2. How will the current market conditions affect the future of cryptocurrencies?
The market will need to adjust and cryptocurrencies may become more focused on trading instead of being used as a long-term investment.
3. Is there potential for cryptocurrencies to become more stable and reliable in the future?
Yes, as the market adapts and matures, cryptocurrencies may eventually transition into a more stable and reliable trading option.

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