Bitcoin (BTC) could be on the verge of plummeting to price levels not seen since 2020, according to Mike McGlone, senior macro strategist at Bloomberg Intelligence. With liquidity drying up and interest rates rising, McGlone suggests that a mean reversion back to around $7,000, where the rally started, is a possibility. This would entail a nearly 75% decline from Bitcoin's current price of $26,889.

McGlone points out that Bitcoin is still up nearly four times from the period when the Federal Reserve began expanding the money supply during the COVID-induced market collapse. However, he believes that the enduring patterns of booms and busts tied to liquidity shifts make a decline back to the 52-week mean plausible. McGlone also notes that the Federal Reserve's tightening measures, despite a bank run, demonstrate the central bank's determination.

The recent market dynamics, with declining copper and crypto prices contrasting with the resilient stock market, seem to reflect a cautious sentiment. McGlone emphasizes that Bitcoin needs to show a more significant divergence from equities before it can be considered a risk-off asset, similar to gold, under the current financial conditions.

In an interview with Scott Melker, McGlone states that while he is bullish on gold as a risk-off asset, he believes that Bitcoin has yet to demonstrate the same level of divergence from other risk assets. He suggests that Bitcoin would need to show substantial strength even as the S&P 500 experiences a significant drop, potentially down to 3,000, similar to the declines observed in copper, for it to truly establish itself as a risk-off asset.

McGlone highlights the facts surrounding Bitcoin's price history, noting that prior to the liquidity pump in 2020, the average price of Bitcoin in 2019 was $7,000. Despite reaching a peak of $60,000, it currently stands at $27,000, still four times its 2019 average. This indicates a potential mean reversion risk, leading McGlone to suggest that this is not a market where one should be long on any risk assets.

As Bitcoin faces the possibility of a significant decline, investors and market participants will closely monitor its price movements and the factors influencing its trajectory. The market's reaction to liquidity shifts and the overall risk sentiment will play a crucial role in shaping Bitcoin's future direction.