Stifel analyst: Crypto crash promises good for stocks | 20/05/22

• Crypto market under pressure on various fronts
• BTC reacts more violently than stocks
• Bottom formation ahead?

Hard times for crypto investors: Digital currencies like Bitcoin, Ethereum & Co. has been under pressure since the beginning of the year and the downward trend has been rising for a few weeks. Crypto-veteran Bitcoin has lost more than a third of its value since the beginning of the year, for number two after market value, Ethereum, the balance sheet is even more devastating.

Various causes of crypto breakdown

Cryptocurrencies are fighting on several fronts at the same time. Observers refer in particular to the massive problems that recently emerged from the cryptocurrency TerraUSD (UST). The US dollar-denominated stablecoin failed to maintain its targeted parity with the US dollar over the past week, causing the UST-denominated LUNA coin to become virtually worthless. Crypto investors reacted in panic, the entire crypto market came under pressure. This panic also spread to the largest stablecoin measured by market value, Tether, which was also unable to show parity with the US dollar in the meantime.

But even before the events surrounding TerraUSD, the mood in the crypto market was pessimistic. Investors increasingly took the prospect of rising key interest rates as an opportunity to get rid of their crypto investments. Concerns about inflation and recession also weighed on market sentiment. In addition, there was also some correlation between Bitcoin and other risk-sensitive investments such as technology stocks – this also contributed to the downward trend in the cryptocurrency market as the attractiveness of cryptocurrencies relative to equities has declined.

Analyst finds positive things about cryptocurrency

The market situation is bad – not only for cryptocurrencies, but also for stocks. Because – apart from the development in stack coins – investors in assets outside the crypto market are also concerned about similar concerns: Rising key interest rates, inflation and an impending recession are also lowering the mood of equity investors.

For Stifel analyst Barry Bannister, however, the crash in the crypto market is a good sign for equities. Although Bitcoin & Co. correlates strongly with developments in the stock market, the price declines in cryptocurrencies are much clearer than in equities.

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“We are monitoring several factors that we believe are the low capitulation for stocks [ein Punkt, an dem der Markt einen Boden findet, Anm. d. Red.] “Barron’s” quotes from a customer statement from the analyst. One of the factors on this long list is Bitcoin, which Bannister describes as a “highly speculative investment” that still has “downside potential down to $ 15,000”. The expert therefore assesses that it is possible. that the oldest cryptocurrency – based on the current price level – could be cheaper by around 50 percent, while at the same time seeing the S&P 500 with a downward potential of only five percent to expect, Bannister said, adding that investors will sell at any price in a leaching, which the analyst believes will help time the bottom for stocks.

“Equities thrive on excess liquidity,” the expert at Barron’s is further quoted as saying. A declining money supply M is straining the S&P 500, but even more so on Bitcoin. And more difficult financing conditions are also likely to weaken the cryptocurrency significantly.

Nevertheless, the expert believes that the situation in the market may get worse before it is finally eased. A capitulation in the crypto market is only to be expected in the third quarter, “finally […] So Bitcoin crashes may still be imminent, “Bannister continued.

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