Bitcoin will not bottom out until the economy bottoms out
U.S. stocks are poised for more pain — and bitcoin (BTC-USD) will feel the sting, too, according to one of Wall Street’s most bearish strategists.
Like high-beta stocks, the cryptocurrency is unlikely to make a low before leading economic indicators bottom, Piper Sandler investment strategist Michael Kantrowitz said Wednesday in an interview with Yahoo Finance Live.
Over the past two years, the coin has traded in line with the relative performance of high-to-low-beta stocks, or individual assets that fluctuate with the broader market, Kantrowitz explained.
“So it’s essentially a beta trade,” Kantrowitz said. “And that relationship has been locked in, really, for the last two years or so. And so that means it’s a macro trade because beta is a macro factor.
Investors have sold off U.S. stocks in recent sessions following claims by Federal Reserve officials that the bank will continue to intervene aggressively to restore price stability, even at the expense of economic growth.
On Wednesday, all three major indexes capped the month of August with losses of more than 4%, erasing a growing portion of their gains from a rally earlier this summer.
“Anything that looks, walks or talks like beta — bitcoin is a clear example — is something we definitely want to avoid,” Kantrowitz said. “And so we’ve seen a bit of a stabilization in things like Bitcoin and beta in this market rally. That’s, I think, over, and that’s why we’re starting to see more pain going forward.”
Similarly, bitcoin (BTC-USD) traded down to $20,195.40 as of Wednesday afternoon, a loss of more than 13% for the month, according to Yahoo Finance data.
As volatility continues across risk assets, Kantrowitz expects the token to fall as low as $15,000, but notes that the bearish target is not a long-term view.
“It’s a purely cyclical view with the recognition that it’s acting just like the market today, so until we see a bottom in the economy, I don’t think we’re going to see a bottom in bitcoin,” he said.
As for the broader market, Kantrowitz currently maintains a 3,400-year price target on the S&P 500 and sees falling earnings and rising rates eventually wearing down market bulls.
“Earnings expectations are still way too high,” Kantrowitz said. “I don’t think that’s unusual or out of consensus at all. We’ve been saying that all year, and pretty much most people are saying it today…We think that estimate is going to fall another 6% year-over-year end at around $230. And as that happens, we think there will also be pressure on market opportunities as we see credit spreads widen and employment data deteriorate.”
“So that’s how we get to our 3,400 year end goal at about 15 to 16 times 230 estimates for next year,” Kantrowitz said. “Now we don’t think that’s the low, nor do we think that’s what earnings are going to be. We just think that’s where the consensus will be at the end of this year.”
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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