Warren Buffett Dumped $13.3B in Stocks – A Warning Sign for Bitcoin and Risk-On Assets?


Warren Buffett’s move to cash suggests he is prepared for a possible decline in risk-on asset prices. with bitcoin (B T c) up 70% year-to-date and correlated with equities, should BTC investors also prepare for a possible stock market crash?

Buffett Says “Incredible Period” Is Over

Warren Buffett’s Berkshire Hathaway dumped equities worth $13.30 billion in its latest quarter and risked cash and US Treasuries income report shows. Meanwhile, it invested $4.4 billion in buying back its own stock and $2.9 billion in shares of other publicly traded companies.

The market regards Berkshire Hathaway’s performance as a leading indicator for assessing the health of the US economy, given the firm’s holdings range from US railroads to electric utilities and retail businesses.

But the 92-year-old investor, who in the past credited the growth of the US economy to Berkshire Hathaway’s success, is no longer optimistic.

“Most of our businesses will report lower earnings this year than last year,” Buffett said. Said At an event last weekend. He said an “incredible period” for the US economy is coming to an end over the past six months.

Berkshire increased its cash reserves by $2 billion to $130.60 billion in Q1/2023, the highest level since the end of 2021 when Equity entered a bear cycle, In addition, the firm has a large amount of its cash held in short-term treasury bills and bank deposits with high interest rates close to 5%.

In other words, Buffett is preparing for a possible stock market crash, especially as the US banking crisis unfolds (eg PacWest Bancorp And Western Alliance Bancorp,

Bitcoin price remains correlated with Nasdaq

The growing prospect of a global recession also risks exerting downside pressure on bitcoin, whose 100-week correlation with the Nasdaq has reached a high of about 0.42%.

Furthermore, Bloomberg Intelligence analyst Mike McGlone expects BTC price to be a leading indicator for a stock crash.

“Bitcoin Could Accelerate Downsides for Risk Assets – If the Worst Is Not Over for Risk Assets, Bitcoin Could Go Lower,” noted McGlone, adding:

“Bitcoin is up almost 70% versus 20% for stock indexes in 2023 through May 2, and they are probably booming within broader bear markets. Fed [is] still tightening in May, and [is] Unless risk assets fall to moderate inflation, more are inclined to stay the course, this could portend a lose-lose.”

Bitcoin-NASDAQ Correlation Index

In the short term, there is little hope from the US Consumer Price Index report on May 10 about inflation easing in April. According to Bloomberg surveyEconomists expect the core CPI to remain unchanged at around 5%, which means more rate hikes ahead.

On the other hand, a large drop in inflation would potentially prompt the Fed to consider pausing or even reducing interest rates in an extreme case.

Currently, data from Fed funds futures suggest that at least five rate cuts are likely between May 2023 and January 2024 — something that could pour cold water on Buffett’s risk-off strategy.

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Fed funds rate estimate. Source: Bloomberg

Could bitcoin price fall below $25K again?

Bitcoin price has declined by about 6% in the past week, trading at a low of $27,350 on May 9.

Notably, this has dragged BTC price below its 50-day exponential moving average (50-day EMA; Red Wave) near $27,950.

Bitcoin bears are now eyeing $27,000 as the next downside target based on the level’s recent history.

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BTC/USD daily price chart. Source: TradingView

A decisive break below the $27,000 support, mainly in the event of further rate increases, could drag BTC/USD closer to its 200-day EMA (Blue Wave) at $24,600. In other words, a 10% drop by June.

Conversely, a bounce off $27,000 increases the chances of BTC price retesting $30,000 as resistance, and resuming the uptrend of the past few months.

Connected: What Analysts Say About The Effect Of Fed, US Debt Ceiling On Bitcoin Price

This article does not constitute investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.