What does a weekend bitcoin price collapse mean for US stocks?

Bitcoin BTCUSD, + 0.42%, is said to be an asset that is not highly correlated to the stock markets or any other traditional asset. However, some analysts have indicated that the cryptocurrency has traded more closely with parts of the market amid recent turmoil in stocks, investors are trying to evaluate the most effective strategies for an economy recovering from the worst pandemic in more than a century.

In a blog post on Sunday, Mott Capital’s Michael Kramer said that Bitcoin’s recent collapse could indicate that risk appetite on Wall Street is in transition – presumably in a bearish direction.

“Bitcoin tells us that the overall risk sentiment of the market is changing, and we care about bitcoin because we care about risk sentiment,” Kramer wrote.

Mott Capital Management

Bitcoin prices are down 28% from a high of $ 64,829.14 in mid-April, and Sunday trading was choppy for the world’s most famous crypto after a tweet from Bull for Digital Assets and Tesla Inc. TSLA, + 3, 16% CEO Elon Musk, interpreted as a threat to unload the $ 1.5 billion investment in Bitcoin that the electric vehicle company announced back in February.

Check out: Instead of ‘Will cryptos go to zero?’ Investors should ask that question instead, says the strategist

Kramer contended that the bullish sentiment that has been a feature of the markets recently – even given last week’s volatility – could downshift and that an aspect of the market that may be moving most closely in line with Bitcoin prices , is low -capitalization stocks, like those in the Russell 2000 Index RUT, + 2.47%.

Mott Capital Management

The Russell 2000 closed 2.1% on Friday, its largest weekly percentage decline since March 26th. It has been a bloody week for stocks in general, though stocks rallied solidly to end the five-day trading period that saw mid-week inflation turmoil. The Dow Jones Industrial Average DJIA, + 1.06%,
The S&P 500 SPX (+ 1.49%) and the technology-laden Nasdaq Composite Index COMP (+ 2.32%) all posted their highest weekly losses since February 26, and the Nasdaq also posted its longest weekly streak , four in a row, since August 23, 2019.

Read: ‘Jammed and distorted’: Investors struggle with inflation that could put the Fed’s framework to the test

Kramer said “Bitcoin is melting,” adding that it is possible the asset has more room to fall.

Some technical analysts see Bitcoin potentially reaching $ 42,000. Katie Stockton, market technician and founder of Fairlead Strategies, said support for the coin is in this area, which touched a weekend nadir of just over $ 43,800.

What does this all mean for stocks? It’s difficult to say.

Futures for the Dow YM00, -0.20%,
The S&P 500 Index ES00 (-0.12%) and the Nasdaq-100 NQ00 (-0.14%) were trading slightly lower on Sunday evening.

Some analysts expect stocks to rise by the end of 2021 regardless of Bitcoin moves.

Tom Lee, founder of Fundstrat Global Advisors, predicts the S&P 500 will rise another 7% to 8% from current levels and is sticking to his target for the broad market benchmark of 4,400.

Lee said the markets’ attempt to “collapse” last week failed, and he saw parallels between last year’s slump and this current period, which he attributed at least in part to tax adjustments that were extending deadlines to May 17 were.

“In other words, the market couldn’t panic enough to keep pushing down,” Lee wrote.

“Instead, we saw a strong rally in the second half of the week. We believe this rally will carry over to this week. In fact, we believe stocks are still on track to make new highs before June 30, ”he forecast.