- Bitcoin is down 40% to start the year as investors sell risk assets.
- Stifel’s Barry Bannister is warning of further downside is ahead.
- He said bitcoin could fall as low as $15,000, downside of 47% from current levels.
After its rally in March back toward its January levels, bitcoin is again biting the dust in 2022.
Bitcoin is down 40% on the year after falling more than 28% since May 4 alone. Much of the broader crypto world has followed suit.
still has further downside.
In a note to clients on Thursday, Bannister shared several charts showing why he thinks more pain is ahead for bitcoin — he said he believes bitcoin’s price could fall another 47% to $15,000. Below are three of Bannister’s charts.
3 charts that show why bitcoin has further to fall
The first is how bitcoin’s price moves compared with stocks with changes in growth in the global M2 money supply.
Investors have been selling risk assets like stocks and cryptocurrencies — which tend to perform better in more liquid economic environments — in anticipation of tighter monetary policy than originally expected amid four-decade-high inflation, and as geopolitical turmoil constrains supply chains.
To cool off inflation, the Federal Reserve is starting to pull money out of the US economy by reducing the assets they hold, and is hiking interest rates by 50 basis points at a time, the fastest clip in two decades. These policy moves are designed to slow down economic activity.
Since the start of the year the S&P 500 is down more than 19%, and growth stock-heavy Nasdaq 100 is down more than 26%.
But according to Bannister, bitcoin is much more vulnerable to de-risking and shrinking
than stocks. The charts below compare stocks’ movements alongside liquidity fluctuations compared to bitcoin’s. Bitcoin moves much more dramatically when money supply changes.
Second, bitcoin’s price movements are correlated with manufacturing activity indices, which are indicators of future economic growth, Bannister said.
Bannister said that given the several headwinds for the economy, the outlook for bitcoin’s price performance is also poor.
“Bitcoin is GDP-sensitive, with Bitcoin falling as the PMI Manufacturing index falls as we expect, indicating a capitulatory Bitcoin drop ahead,” Bannister said. “As the Purchasing Manager Index for Manufacturing, an excellent indicator for GDP and Industrial production, weakens (our view through 3Q22) due to Fed tightening, war fall-out (not the nuclear type…yet) and China’s 2021 tightening plus their 2022 COVID, the Bitcoin price may plunge.”
Below is bitcoin’s relationship with the ISM PMI Index measuring manufacturing activity. The index is expected to show lackluster readings in the months ahead, and Bannister believes this could mean downside to $15,000 for bitcoin.
And third, bitcoin tends to underperform relative to gold when financial conditions tighten, Bannister said.
The below chart shows bitcoin’s outperformance when the Fed turns dovish, and vice versa. Gold has started to outperform bitcoin in recent months as the Fed has increasingly become more hawkish.
How hawkish the Fed will be the rest of the year remains to be seen. If inflation begins to moderate — which it did slightly in April — the Fed could back off of its tightening spree in order to avoid triggering a
“A Fed pivot is needed to put in a Bitcoin low,” Bannister said.