The financial markets are flashing warning signs and opportunity signals at the same time, with diverging paths emerging for gold and cryptocurrencies. According to Mike McGlone, Senior Macro Strategist at Bloomberg Intelligence, while the crypto market has shown resilience in 2023, caution is warranted as macroeconomic headwinds intensify. At the same time, gold appears poised for a sustained rally amid tightening monetary policy and declining risk appetite.
McGlone recently shared insights on Twitter, highlighting key technical and macroeconomic indicators that suggest a potential turning point for risk assets. His analysis draws from historical patterns, monetary trends, and cross-market correlations—painting a picture of a market on the verge of transformation.
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Cryptocurrencies at a Crossroads: Resistance Levels and Risk-Off Signals
One of McGlone’s central observations revolves around Ethereum (ETH), which has repeatedly struggled to break above the $2,000 mark since 2021. This price level has become a psychological and technical pivot point—not just for ETH, but as a bellwether for broader crypto sentiment.
“Since 2021, $2,000 has been a pivotal level for Ethereum and could remain a key resistance in 2025,” McGlone noted. “After briefly dipping below $1,000 in June—just before the transition to proof-of-stake—its ceiling has hovered around $2,000.”
This stagnation mirrors broader challenges facing risk assets. In a revealing chart comparison, McGlone illustrated the close correlation between ETH/USD and the Nasdaq-100 Index. Notably, the last time Ethereum reached ~$2,000 in the second half of 2023, the Nasdaq-100 posted a weekly closing high of 13,566. A breakout above this level on April 12 may have signaled the start of a new bullish phase—or merely a bear market rally.
However, McGlone warns that structural forces are stacking against sustained gains. “Monetary policy operates with long and variable lags,” he explained. “We’re facing near-unprecedented headwinds: U.S. banking deposits are shrinking at the fastest pace since 1971. Expecting the banking crisis to resolve while the Fed continues tightening is illogical.”
The Fed’s Tightening Cycle and Shrinking Money Supply
A deeper dive into monetary conditions reveals even more concerning trends. McGlone emphasized that the contraction in money supply—a key driver of asset prices—is occurring at its fastest rate since 1959. Citing former Fed Chair Ben Bernanke’s research on the Great Depression, he underscored that “the primary force suppressing aggregate demand is the global contraction in money supply.”
This environment is particularly hostile to speculative assets like cryptocurrencies. Bitcoin (BTC) and Ethereum both thrive on liquidity expansion and risk-on sentiment—conditions that are currently eroding.
“Bernanke’s papers on the Great Depression may be more relevant today than ever,” McGlone stated. “The Dow fell about 50% from peak to trough in 1929, then rebounded by a similar magnitude into 1930. That kind of volatility could foreshadow what’s ahead for risk assets in 2025.”
With the Federal Reserve maintaining a hawkish stance despite falling commodity prices, the path forward for crypto remains fraught with downside risks.
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Gold Emerges as a Safe Haven Amid Deflationary Pressures
While cryptocurrencies face mounting pressure, gold is emerging as a standout performer in this shifting landscape. McGlone believes the precious metal is entering a new phase of strength, driven by deflationary dynamics and weakening equities.
“I think it’s inevitable that gold breaks above $2,000—and doesn’t look back,” McGlone said in a recent Yahoo Finance interview. “The key catalyst? Equities rolling over. That’s exactly what’s needed to fuel gold’s next leg up.”
He identifies several reinforcing factors:
- A broad decline in fossil fuel prices, reducing inflationary pressures and increasing demand for non-yielding safe-haven assets.
- Falling money supply, which historically correlates with increased gold ownership.
- Deteriorating bank balance sheets and declining investor confidence in traditional financial systems.
Gold’s role as a hedge against systemic risk is regaining prominence. As risk assets like tech stocks and digital currencies face headwinds from tighter liquidity, investors are increasingly turning to hard assets with intrinsic value.
McGlone sees this trend as just beginning: “Gold is one of the few commodities I’m truly bullish on because everything is starting to tilt toward deflation. This dynamic is only starting to take hold.”
Market Structure Shift: From Risk-On to Risk-Off
The divergence between gold and crypto underscores a broader structural shift in financial markets—from risk-on speculation to risk-off preservation.
McGlone’s analysis of the ETH/BTC ratio, Nasdaq performance, and Fed balance sheet trends reveals a synchronized move toward de-risking. The ETH/BTC cross, which he describes as a “24/7 traded indicator,” may serve as an early warning system for broader risk appetite—similar to how Nasdaq performance often leads the S&P 500.
When combined with collapsing banking deposits and shrinking M2 money supply, these signals suggest that the current market environment favors capital preservation over aggressive growth bets.
Key Takeaways for Investors
- Cryptocurrencies may face extended consolidation or correction due to tightening monetary conditions.
- Gold is positioned to benefit from deflationary trends and equity market weakness.
- Monetary contraction remains the dominant force shaping asset performance—more so than short-term price movements.
Frequently Asked Questions (FAQ)
Q: Why is $2,000 such an important level for Ethereum?
A: The $2,000 mark has acted as both psychological resistance and technical pivot since 2021. Repeated failures to sustain prices above this level reflect weak conviction amid broader risk-off sentiment.
Q: What makes gold a better investment than crypto in a deflationary environment?
A: Gold has historically performed well during deflation due to its status as a safe-haven asset. Unlike crypto, it has no counterparty risk and is not dependent on liquidity expansion for valuation support.
Q: How does shrinking bank deposit data affect financial markets?
A: Rapid declines in bank deposits signal loss of confidence in the banking system and reduced lending capacity—both of which constrain economic growth and asset valuations.
Q: Is a crypto rebound possible if the Fed pauses rate hikes?
A: A pause could trigger short-term rallies, but sustained recovery would require actual monetary easing and improved balance sheet conditions—neither of which appear imminent.
Q: Can Ethereum recover if it breaks below $1,800?
A: A breakdown below $1,800 could accelerate selling pressure toward $1,500 or lower, especially if Nasdaq and other risk assets weaken further.
Q: What historical precedent supports McGlone’s outlook?
A: The 1929–1930 market cycle—where equities dropped sharply, rebounded temporarily, then entered prolonged decline—mirrors current conditions of monetary contraction following an extended bull run.
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