The recent move by Warren Buffett towards cash has sparked speculation that he’s bracing for a potential collapse in asset prices, including Bitcoin (BTC) which has been correlated with equities. With BTC up 70% year to date and the increasing possibility of a global recession, the cryptocurrency might experience downside pressure.
Buffett’s Berkshire Hathaway offloaded $13.30 billion in equities and raised its cash reserves by $2 billion to $130.60 billion in Q1/2023, the highest level since the end of 2021 when equities entered a bear cycle. This could indicate that the legendary investor is preparing for a potential stock market crash as the U.S. banking crisis continues to unfold.
Bitcoin’s 100-week correlation with Nasdaq has reached a high level of about 0.42%, and Bloomberg Intelligence analyst Mike McGlone points out that the cryptocurrency might lead the way lower. He states that Bitcoin’s price could be a leading indicator for a stock crash should the worst not be over for risk-assets. However, among possible rate cuts between May 2023 and January 2024, Buffett’s risk-off strategy might lose its impact.
As of now, Bitcoin’s price has declined roughly 6% over the past week, trading as low as $27,350 on May 9. This dip below its 50-day exponential moving average (50-day EMA), has prompted bears to set their sights on $27,000 as the next downside target based on the level’s recent history. A decisive break below $27,000, especially in light of further rate hikes, could drive BTC down to its 200-day EMA near $24,600 – a 10% drop by June.
On the flip side, a rebound from $27,000 could increase the possibility of Bitcoin’s price retesting the $30,000 resistance and resume its uptrend. The market awaits the U.S. consumer price index report on May 10 to gauge inflation in April. Bloomberg’s survey estimates core CPI to remain unchanged at around 5%, meaning more rate hikes are ahead.
In summary, a potential stock market crash driven by factors such as the unfolding U.S. banking crisis and Buffett’s move to cash reserves could put considerable downside pressure on Bitcoin. While some believe the cryptocurrency’s price might lead the way lower, possible rate cuts and a rebound from current levels could keep its bullish momentum alive. Nevertheless, investors need to closely monitor these developments and conduct thorough research before making any decisions.