According to Bloomberg Intelligence’s senior macro strategist, Mike McGlone, the rapid rise of Bitcoin over the past decade bears an unsettling resemblance to the stock market bubble of 1929.
McGlone points out that the current high-interest rate environment is reminiscent of the conditions that caused the stock market to crash in 1930.
In support of his claim, the analyst presents a chart that illustrates how the US discount rate reached its peak in 1929, just before the 100-week moving average of the Dow Jones Industrial Average (DJIA) dropped.
The US discount rate is addressed
The US discount rate is the interest rate at which banks borrow from the Federal Reserve.
The chart also shows a steep increase in the Fed’s interest rate over the last year, while Bitcoin’s 100-week moving average has been on a downward trend.
Bitcoin, one of the most successful assets in history and a leading indicator, is likened to the stock market in 1930.
Roger Babson, a statistician, and entrepreneur, cautioned about elevated equity prices before economist Irving Fisher declared a ‘permanently high plateau’ in 1929. The Fed’s stance aligns more closely with Babson’s warning.
According to Bloomberg analyst McGlone, the birth of Bitcoin is reminiscent of the technological advancements that occurred around a century ago, such as electricity, cars, air travel, and telephones.
Both the parabolic rise of Bitcoin and the emergence of revolutionary technologies in the 1920s took place when the Federal Reserve kept interest rates low.
What is interesting about this is the similarities between Bitcoin and the stock market as it neared its peak in 1929. Both experienced revolutionary technological advancements, parabolic price moves, excessive liquidity, and speculation.
However, a significant difference is that in 4Q29, the Fed Bank of New York started lowering rates as equity prices plunged.
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