Macro strategist Mark Cudmore recently spoke with Bloomberg to evaluate the latest developments in the cryptocurrency market and their potential impact on stock markets.
Concerns Over Companies Holding Digital Assets
According to Cudmore, the situation of companies holding significant digital assets remains a source of concern in the markets.
Cudmore stated that the "pain" in the crypto market is not over yet. He highlighted the dynamic created by companies like MicroStrategy, which hold substantial amounts of Bitcoin on their balance sheets. While MicroStrategy's announcement that it has a reserve fund to cover the next 14 months of dividend payments has provided some relief to the markets, Cudmore expressed caution regarding the overall picture.
Amplified Market Movements and Potential Risks
The analyst believes that digital asset-focused companies and their exchange-traded funds (ETFs) create a "multiplier" effect. This effect amplifies market movements in both directions. He warned that if the share prices of these companies fall below the value of their crypto assets, they might be compelled to sell their holdings. This scenario could lead to a "negative death spiral."
Hindrance to Year-End Rally
Cudmore suggested that several factors could hinder the expected year-end rally. These include the possibility of a "hawkish interest rate cut" from the Federal Reserve next week and the ongoing decline in the cryptocurrency sector, which could negatively affect individual investors.