Warren Buffett appears to be shifting capital to cash as he prepares for an impending plunge in risky asset prices. With Bitcoin up 70% year-to-date and correlated with stocks, should BTC investors brace for potential stock market disaster?
Buffett: “billionAmazing Miracles” is over
according to Report In its latest quarterly earnings, Warren Buffett’s Berkshire Hathaway sold $13.3 billion in stocks in the first quarter and increased its exposure to cash and U.S. Treasuries. Meanwhile, the company moved $44 billion to buy its own stock and $2.9 billion to buy other publicly traded stocks.
The market views Berkshire Hathaway’s results as an important indicator of the health of the U.S. economy because of the company’s holdings in a broad range of stocks, from U.S. railroads to utilities and retail businesses.
But the 92-year-old investor is no longer optimistic, even though the country owes its economic growth to the success of Berkshire Hathaway.
“Most of our businesses are going to have lower earnings this year than they did last year,” Buffett said. explain Went to an event last weekend. He added that an “incredible period” for the U.S. economy over the past six months is over.
Berkshire boosted its cash pile by $2 billion to $130.6 billion in the first quarter of 2023, the highest level since late 2021, when the stock entered a bear market cycle. In addition, companies hold large amounts of cash in the form of short-term Treasury bills and bank deposits due to higher interest rates near 5%.
In other words, Buffett is bracing for the potential risk of a stock market crash, especially if the US banking crisis continues (such as PacWest Bancorp and Western Alliance Bancorp).
Bitcoin Price Still Correlated With Nasdaq
The growing likelihood of a global recession could also put downward pressure on Bitcoin, as the 100-week correlation with Nasdaq peaked at around 0.42%.
Additionally, Bloomberg Intelligence analyst Mike McGlone forecast BTC price could be an indicator of a stock market crash.
“Bitcoin may accelerate the decline in risk assets. If the worst is not over for risk assets, Bitcoin may lead to an even lower decline. As of May 2, Bitcoin is up about 70% in 2023, while Equity indexes are up 20%, and these indexes may rebound in a broader bear market. The Federal Reserve (Fed) is still tightening policy in May, and many trends that are trying to maintain may portend losses unless risk assets fall to ease inflation.”
Bitcoin – Nasdaq Correlation Index | Source: Bloomberg
In the short term, judging from the US Consumer Price Index (CPI) report on May 10, it is unlikely that inflation will decline in April. According to a Bloomberg survey, economists expect core CPI to be flat at around 5%, implying more rate hikes.
On the other hand, a sharp drop in inflation could prompt the Fed to consider pausing or even cutting interest rates in extreme cases.
Now, fed funds futures data point to the possibility of at least five rate cuts between May 2023 and January 2024 — which could be a huge shock to Buffett’s hedging strategy.
Fed Funds Rate Forecast | Source: Bloomberg
Can Bitcoin Price Fall Below $25,000 Again?
Bitcoin has fallen about 6 percent over the past week, trading as low as $27,350 on May 9.
Notably, this dragged the price below the 50-day exponential moving average (50-day SMA, red wave), near $27,950.
Based on the level’s recent history, Bitcoin bears are currently targeting $27,000 as their next downside target.
BTC daily price chart | Source: TradingView
A clear break below the $27,000 support (mainly if interest rates continue to rise) could drag BTC to the 200-day moving average (green wave) around $24,600. In other words, there is a 10% discount for June.
Conversely, a bounce off $27,000 increases the chances of a retest of the $30,000 resistance and a continuation of the uptrend of the past few months.
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- Mike McGlone: Bitcoin can accelerate the decline of risk assets
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As reported by Cointelegraph
