2022 was not the best year for the cryptocurrency market if we look back at it, and the main reason was the macro situation on traditional markets. With the rallying inflation, the financial regulator in the U.S. had no other choice but to condone a stricter monetary policy, suffocating every risk-on investment tool and bringing crypto markets down. Michael Burry believes 2023 will not be any different.
According to Burry, inflation has peaked, but it is not the last peak of this whole cycle. In the new year, we will see CPI even lower or possibly negative in the second half of 2023. Such a drastic drop will cause the recession everyone was waiting for last year.
Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It’s not hard.
— Cassandra B.C. (@michaeljburry) January 2, 2023
Unfortunately for cryptocurrency and other risk-on markets, Burry anticipates another inflation spike. If the analyst is right, the market will have no other choice but to face another wave of pressure because of a key rate spike.
Looking back at predictions of other conservative financial analysts, it becomes clear that Burry is not the only one who believes in the upcoming aggravation of the macroeconomic situation in the financial field. Unfortunately, the correlation between the S&P 500 and Bitcoin reached an absolute high in 2022, practically making digital gold dependent on the performance of the index.
However, such a high correlation between the two instruments should not surprise investors. After 2021’s run, a significant amount of institutional investors gained exposure to the cryptocurrency market and Bitcoin in particular. As macroeconomic conditions got worse for risk-on assets, institutions began selling their risky assets, including Bitcoin, creating enormous pressure on the whole market.