H.C. Wainwright Warns of Bitcoin’s Correlation to Equities in Stressful Markets

Investing.com reports that prices have plummeted, falling 30% over the past week to reach a multi-month low of $49,120 on Monday, a significant drop from a high of $70,000 on July 29. During this time, mining stocks experienced an 18% decline, while the broader market saw only a modest 3.1% decrease.

H.C. Wainwright attributes the sell-off in both cryptocurrency and equity markets to three main factors: concerns over a potential hard landing for the U.S. economy following disappointing economic data, the unwinding of a popular global carry trade after a recent rate hike by the Bank of Japan, and growing geopolitical tensions in the Middle East.

The firm indicated that they had anticipated this price correction, warning that the situation may continue to worsen. Earlier in April, when Bitcoin was trading around $66,000, H.C. Wainwright projected a potential retracement to the low-to-mid $50,000 range in the short term due to macroeconomic challenges and geopolitical uncertainties.

Despite a bullish outlook for the medium and long term, the firm remains cautious in the short term, primarily due to Bitcoin’s increasing correlation with equities during periods of market stress, reinforcing its classification as a risk asset. They caution that any further weakening of economic indicators or rising tensions in the Middle East might exert additional downward pressure on Bitcoin prices.

The report anticipates that the Federal Reserve may respond to these pressures by implementing rate cuts and a more accommodative monetary policy, potentially allowing Bitcoin to regain upward momentum in the next phase of the current bull cycle.

Meanwhile, the economics surrounding mining have deteriorated to historic lows, with hash prices dropping to approximately $0.036 per terahash per day, representing about a 65% decrease from pre-halving levels.

Under these conditions, H.C. Wainwright expects larger public miners with better capital access to gain market share over smaller private competitors. They have identified CleanSpark as their top pick for 2024, citing its scale, strong balance sheet, and low production costs as key advantages.

Additionally, Morgan Stanley plans to allow its financial advisors to offer Bitcoin ETFs to select clients starting this week. Beginning August 7, approximately 15,000 financial advisors will be permitted to promote shares in two U.S. spot Bitcoin ETFs to eligible clients.

H.C. Wainwright views this move as a significant development that could expedite the approval processes at other major banks and anticipates that it will lead to a renewed influx of capital into Bitcoin ETFs.