Bloomberg Intelligence’s senior commodities analyst, Mike McGlone, has issued a stark warning that a potential US debt default could have a significant impact on crypto and stock markets.
He recently made his comments during a recent Wolf of All Streets roundtable discussion, where he stated that he is bearish on crypto assets and stocks, while bullish on gold.
Alarming Prospects of US Debt Ceiling:
McGlone’s concern is rooted in the possibility that the US may default on its debt, with Treasury Secretary Janet Yellen having recently mentioned the word ‘default’ during negotiations to raise the US debt ceiling before the June 1st deadline.
Getting deep into his analysis he argues that a default could significantly impact risk assets, stating that
“It keeps me very bullish on things like gold, very, very bearish things like the stock market and broad cryptos because I don’t think this is going to come to an agreement until markets make that.”
These comments have made him more bullish on gold and negative on stocks and cryptocurrencies.
Gold Shines, Stocks, and Cryptos Suffer
He justified his claim with the 2011 market downturn, where the stock market dropped significantly due to the debt crisis. However, he believes that an agreement will eventually be reached as policymakers will realize that a global economic crash is imminent.
However, amidst the crisis, he says there is a ray of hope. Once an agreement is reached to raise the US debt ceiling, he believes risk assets will rally. In his best-case scenario, waking up to the news of an agreement would trigger a surge in risk assets, with Bitcoin potentially benefiting the most.
He concluded his stance by suggesting that the most probable outcome is that the market’s reaction to the potential US debt default will exert pressure on policymakers to reach a resolution. This pressure would likely result in the debt ceiling being raised to avoid severe consequences for the global economy.
As the June 1st deadline looms, the fate of crypto and stock markets hangs in the balance. Investors are advised to stay vigilant and monitor the developments closely.
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US debt default has become a looming threat for cryptocurrency and stock markets, according to a Bloomberg strategist. At a time of economic strain, a default could cause a domino effect for other asset classes and lead to a bleak future for investors.
The strategists at Bloomberg said that while the US government and lawmakers have avoided default in the past, the country could be entering uncharted territory this time. The potential default would weigh heavy on the nation’s markets, including cryptocurrency and stocks. In a worst-case scenario, the economic effect could be catastrophic for investors of all sizes and types.
Cryptocurrency investors were warned to be especially wary, because the emerging asset class is still volatile. Cryptocurrencies are more susceptible to market drops than conventional stocks and bonds because of their speculative nature. If the US does default, cryptocurrencies will be one of the first asset classes to take a beating, analysts say.
On the other hand, stocks may face less direct volatility, however the economic uncertainty arising from the potential debt default is likely to discourage investors. Since the impact of a US default may take time to fully reveal itself, markets may move more erratically than usual, presenting investment opportunities as well as risks.
Overall, the US debt default has the potential to cause substantial disruption, making some investors wary of investing at all. Whether the US should default is up to lawmakers, but investors should be prepared for any outcome.