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According to Mike McGlone, Bloomberg Intelligence’s senior macro strategist, a significant factor is causing a downturn in the cryptocurrency markets. In a recent interview, McGlone identified the current high interest rates offered on US Treasury Bills (T-Bills) as a key player in depleting the crypto market liquidity.
T-Bills, short-term government debt obligations sold at a discounted rate, have recently been auctioned with an interest of more than 5%. The appeal of these rates has resulted in a cash outflow from the crypto markets, as investors are drawn to the security and guaranteed returns offered by these debt instruments.
McGlone further pointed out that the declining market cap of stablecoins indicates this liquidity drain. He commented, “Stablecoins were great when you had zero interest rates… But now when the US government is giving you 5%. People always need to be reminded of when they point out that fiat currencies decline over time. Yes, they do. But they do pay you interest.”
High returns on T-Bills, coupled with the US government reissuing a significant amount of debt, leads to a considerable pull on liquid and risk assets, with the riskiest, such as cryptocurrencies, being the most affected. McGlone sees this as a shift towards a bear market. He pointed out, “That’s just a giant sucking sound for liquid assets, risk assets, and what are the most risky? Crypto.”
McGlone highlighted that the current economic climate presents conditions cryptocurrencies have not previously faced, including deflating commodities and Federal Reserve tightening. He proposed that investors might be tempted to lock into high-interest T-Bills, wait for the crypto markets to dip, and then reinvest their T-bill interest into discounted cryptocurrencies.