As Warren Buffett’s company prepares for a possible stock market crash, could the 70% growth in Bitcoin’s price since the beginning of 2023 and its positive correlation with the stock market be a wake-up call for digital currency investors?
Warren Buffett: The Amazing Era is over
Berkshire Hathaway, owned by Warren Buffett, sold $13.3 billion in shares to increase its liquidity and invest in US Treasury securities, according to Cointelegraph, according to its latest quarterly earnings report. At the same time, this company has allocated 4.4 billion dollars to buy back its shares and 2.9 billion dollars to invest in other public companies.
Given the breadth of Berkshire Hathaway’s holdings in industries ranging from U.S. railroads to utilities to retail businesses, the market views the company’s performance as a key indicator of the health of the U.S. economy.
But the 92-year-old investor, who credits the growth of the US economy to Berkshire Hathaway’s past successes, is no longer optimistic about the future. Buffett said during an event last weekend:
Most of our businesses will report lower revenue this year than last year. The amazing run of the US economy over the past 6 months has come to an end.
Berkshire increased its cash reserves by $2 billion to $130.6 billion in the first quarter of 2023. This is the highest level of the company’s cash reserves since the end of 2021, when the stock market entered a bearish cycle. In addition, Berkshire keeps a large amount of its cash in short-term Treasury bills and bank deposits, thanks to interest rates around 5%.
In other words, Buffett is preparing for a possible stock market crash; Especially as the US banking crisis continues to unfold with the addition of Pacwest and Western Alliance banks.
Positive correlation between the price of Bitcoin and Nasdaq
The increase in the possibility of a global recession by creating downward pressure on Bitcoin has caused its 100-week correlation to reach its highest level, which is around 0.42%.
Bloomberg Intelligence analyst Mike McGlone also expects Bitcoin’s price trend to be a key indicator of a stock market crash. He notes:
Bitcoin can be the forerunner of the fall in the value of risky assets. If the crisis is not over for risk assets, the price of Bitcoin could fall further.
McGlone explains further:
From the beginning of 2023 to May 2 (May 12), the price of Bitcoin has increased by about 70% and the stock market index has increased by about 20%. The Federal Reserve also continued its contractionary policy in May, and they are still willing to continue this process, unless we see a fall in the value of risky assets, which can lead to a decrease in inflation. A possible lose-lose game.
In the short term, the market has little expectation for the change in the US consumer price index and the decrease in inflation for April, which will be published on May 10. According to a Bloomberg survey, economists expect the main consumer price index to remain unchanged at around 5%, which would mean the continuation of interest rate hikes.
On the other hand, and in exceptional circumstances, a sharp drop in inflation will likely force the Federal Reserve to halt or even reduce interest rate hikes.
Fed Funds Futures data shows that between May 2023 and January 2024 (May to December 1402), the interest rate will probably see at least 5 cuts; An event that can be like cold water on tissue risk reduction strategy.
Will the price of Bitcoin once again reach below 25,000 dollars?
Bitcoin price is down about 6% from last week’s high and is now trading at $27,660.
Notably, Bitcoin price has broken below its 50-day EMA (red), below the $27,950 range, and buyers are now eyeing $27,000 as the next downside target.
A fall below the support level of $27,000, primarily in the event of an increase in interest rates, could lower the price of the Bitcoin/USD pair to the 200-day moving average (blue) near the $24,600 level. In other words, if this happens, we will see a 10% price drop until June.
On the other hand, the return of the price from the $27,000 level means another attempt to cross the $30,000 resistance and increases the possibility of resuming the upward trend of the past few months.