Bloomberg crypto strategist Mike McGlone doesn’t believe that the worst days of bitcoin are behind it, and he says the world’s number one digital currency by market cap is likely to run into trouble again like it did in 2022.
Mike McGlone on the Future of BTC
That year was arguably the worst on record for bitcoin, with the asset losing as much as 70 percent of its value. The currency rose to a new all-time high in November of 2021 ($68,000), though a year later, it was in the mid-$16K range.
In a recent report called “Still, Don’t Fight the Fed,” McGlone said bitcoin is likely to experience further dips in the coming months due to fears surrounding a recession in the U.S. His document explains:
June may show more of the first half of the year bias for rising risk assets and bitcoin in a worst-is-over scenario, or it could roll over into a US recession. Our bias is the latter, notably as markets appear to have priced in an optimistic outcome from the long and variable lags of aggressive central-bank rate hikes, which are still rising.
McGlone says the recent price bumps the world’s leading digital asset has experienced shouldn’t fool traders into thinking the gloom and doom is over. He is warning everyone that further headwinds are likely to arise, and that traders need to be prepared in the coming weeks. He said:
The potential for the rising Nasdaq 100 Stock Index to lift all boats may be ephemeral. The graphic of 100-week moving averages shows downtrends for the stock index and bitcoin. It’s a question of the worst being over or respecting the trend, notably as prices have bounced. Our downward perspective is guided by the lessons of liquidity pumps that reverse and are still dumping, as indicated by federal funds futures in one year (FF13). As a result, it may take a decline in equities for rates to fall.
Will Things Go Down Further?
In May, McGlone claimed that the stock market was likely to fall in ways nobody was anticipating. He also said there are several altcoins out there that are going to be experiencing major corrections soon. He stated:
My base case is going to 3,000. bitcoin is going to go down, [and] I don’t know how far. It might make a new low. Cryptos will go down hard. We’re going to purge some of these 24,000 cryptos. Get rid of some. They’re just silly… Bitcoin’s high of about $30,000 in 2023 vs. the 100-week mean around $33,000 may show the pre-eminent, 24/7, globally traded risk indicator feeling gravity from the comfort zone around $7,000 before the unprecedented 2020-21 liquidity boost. That the widely expected US recession has not yet started may pressure risk assets accordingly.
Our thesis: Cryptocurrencies are like companies and active addresses are like customers, similar to active users of Facebook or active subscribers of Netflix.
We can measure the price (black line) relative to the active addresses (green line) to see if bitcoin is currently underpriced or overpriced.
Investor takeaway: The price (black line) has fallen further from last week and is now in the low $22K region. Active addresses (green line) have also stumbled and dropped to about 928K.
The dip likely stems from financial concerns surrounding Silvergate Bank, an institution that offered services to crypto and blockchain enterprises. The company was unable to submit its annual report to the SEC and said it was concerned about its “ability to continue,” citing conditions relating to the 2022 bear run.
Jerome Powell of the Fed also says further rate hikes may be in order, which could work against BTC like they did last year. Still, while the news may be gloomy, investors stand to benefit should BTC incur additional slumps as they can once again purchase BTC at reduced prices and rebuild their portfolios.
2. Ethereum Daily Active Addresses
Investor takeaway: Ethereum has also been hit hard, with the price (black line) having fallen back into the mid-$1,500 range. Active addresses (green line) have slid back to about 462K.
Concerns surrounding Ethereum are mounting as the network’s volume profile is down 90% over the past three years. In addition, the Shanghai upgrade appears to be losing steam before it’s even had a chance to get started, as only 16% of ETH stakers are earning profits ahead of the event.
3. Top Crypto “Companies” by Total Revenue
Our thesis: Crypto revenue like transaction fees is how a crypto “business” makes money. Smart investors look for the projects generating the most cash.
Investor takeaway: We suggest buying and holding shares (or tokens) in crypto’s biggest moneymakers. The chart above shows the top revenue projects as:
Ethereum (the top blockchain network)
Uniswap (the top decentralized exchange)
Lido Finance (the top staking service)
OpenSea (the top NFT marketplace)
Despite all our talk of the NFT market recovering in recent months, this week marks a huge blow to OpenSea, which has fallen into 4th place. Lido now occupies this list’s 3rd spot.
The situation doesn’t necessarily mean NFTs are suffering. Rather, OpenSea is seeing heavy competition from Blur, which as briefly discussed last week, is crushing its rival and dominating the art token market. New data from DappRadar shows Blur boasting more than $1 billion in sales over the past few days. By contrast, OpenSea has not even earned $480 million.
In the meantime, Uniswap remains firm in the #2 spot after releasing its new iOS wallet, despite a lack of support from Apple. In addition, the enterprise’s native token rose close to 7% this week and led the way in an altcoin rally that included both Litecoin and Polkadot.
4. Top Crypto Companies by Protocol Revenue
Protocol revenue is money paid back to token holders or company treasuries (vs. being paid out to liquidity providers as with Uniswap, or NFT holders as with OpenSea). You might roughly think of this like stock dividends.
Investor takeaway: Our top four remain Ethereum, OpenSea (despite its slip in the 2nd category), dYdX, and GMX, which took over for PancakeSwap as this list’s #4 a few weeks ago.
During this time, only Ethereum appears to have added to its protocol revenue, having shot up by $20 million since last week to move beyond the half-a-billion mark. No doubt ETH will remain our #1 for some time, as even in the face of the adversity, it’s still surpassing its fellow protocols on this list.
5. Total Value Locked
TVL represents how much is held or “locked” in a company’s smart contracts. It is roughly equivalent to the deposits held by a bank and can signal a crypto company’s strength.
Investor takeaway: Lido Finance has increased its market cap further and stands beyond its closest competitor (MakerDAO) by a whopping $2.1 billion. The company was the subject of misinformation this week after Bankless claimed that it may have been served a Wells notice by the SEC. The message has since been retracted and Bankless co-founder David Hoffman issued an apology.
Meanwhile, MakerDAO could see its position strengthen in the coming days now that the firm is contemplating a $750 million investment in U.S. treasuries. Should the enterprise move forward, Maker’s ceiling would be brought to $1.25 billion following its first $500 million treasuries investment last October.
Curve and Aave are still in 3rd and 4th place on this list. They appear to be in stable positions after they experienced price hikes of 4% (Aave) and 10% (Curve), respectively.
6. Top Crypto Exchanges
Our thesis: Crypto exchanges, both centralized and decentralized, are arguably the most important applications in blockchain. Savvy investors look for which will be the #1 and #2 exchanges over the long term.
Investor takeaway: Uniswap remains in 1st place, though it’s experienced another $200 million dip since our last edition. Next come Curve, PancakeSwap, and dYdX in that order.
Only $1.7 billion separate the market caps of PancakeSwap and Curve, and in the coming weeks, the former could wind up strengthening its position as version 3 of the platform is set to be unraveled on the BNB Chain network in early April. The project has also burned roughly $27 million worth of its native CAKE tokens, thus giving itself an added touch of rarity.
The story surrounding crypto exchanges is still very much a mixed bag, as both DEXs and CEXs have their benefits and their problems, so serious investors should consider holding assets in a variety of platforms to keep them safe.
7. Top Lending Protocols
Our thesis: Lending and borrowing is another proven use case of blockchain. Savvy investors look for the companies that will dominate the lending market long term.
Investor takeaway: #1 placer Aave is down by about $200 million from last week, though its market cap remains above $1 billion. MakerDAO and Compound still occupy the 2nd and 3rd place spots, while Euler is back in 4th place with a $50 million lead over previous contender Abracadabra.money.
Crypto lending is still in the dunk tank, having been hit hard (like many divisions) thanks to the 2022 crypto winter. Many industry leaders, like Coinbase, have parted ways with Silvergate Bank, a crypto lender that as mentioned above, is enduring its fair share of financial problems.
Other smaller lenders, such as Babel Finance, are now examining the possibilities behind repayment tokens to ensure embittered customers gain access to potential recovery options. Babel was forced to halt all withdrawals last summer due to ongoing volatility and speculation in the market.
8. Top Smart Contract Platforms
Our thesis: Smart contract platforms are like the operating systems for Web3. We predict there will be two or three big winners that will go on to dominate the internet of tomorrow.
Investor takeaway: Bitcoin remains at #1 in this category (Token Terminal still has not corrected its technical issue, so ETH is not listed in the above chart despite the fact that it’s still #2). In 3rd place, as usual, is BNB Chain, though its market cap has fallen another $4 billion despite positive news that it will serve as the host to PancakeSwap’s version 3 (mentioned above).
9. Top DeFi Protocols
Our thesis: DeFi companies are the future giants of fintech, disrupting or replacing all the legacy payment and banking systems of today.
Investor takeaway: Chainlink has incurred another fall and is now at $6.9 billion. It still maintains a $600 million lead over #2 placer MakerDAO, however, while BitDAO has stayed in 3rd place.
Don’t expect Chainlink to remain down for long. As we mentioned in an earlier newsletter this week, the company is leading the way when it comes to oracle projects, which are designed to present external data to blockchain networks. Crypto investors can take advantages of the new opportunities presented by oracles like Chainlink (read our Oracle Sector Report here).
10. Top NFT Collections
Our thesis: NFTs are a specialized niche of crypto. They’re only appropriate if you really love collecting. Even then, they should not compose more than 1% of your portfolio.
Investor takeaway: BAYC is still in 1st place, though its siblings haven’t fared as well. MAYC has shifted from 5th place to 10th, while BAKC is gone from the top ten entirely. This edition’s #2 and #3 are Otherdeed and Mocaverse.
The NFT game is heating up, especially as Blur and OpenSea continue to go at each other’s throats (discussed above). Check out our NFT Guide and Top NFT Projects for 2023 if pixelated art tokens still fit your fancy. These resources can help you decipher which ones are worth your time.