Warren Buffett Dumps $13.3 Billion in Stocks — A Warning Sign for Bitcoin and Risk Assets?
Warren Buffett’s move into cash suggests he is bracing for a possible collapse in asset price risk. With Bitcoin (BTC) up 70% year-to-date and correlated with stocks, should BTC investors also prepare for a potential stock market crash?
Buffett says “incredible period” is over
Warren Buffett’s Berkshire Hathaway dumped $13.30 billion worth of stocks and increased exposure to cash and U.S. Treasuries in the 1st quarter, its latest quarterly report shows. Meanwhile, it channeled $4.4 billion into buying its own stock and $2.9 billion into the stocks of other publicly traded companies.
The market considers Berkshire Hathaway’s performance a key indicator to gauge the health of the US economy, given the firm’s holdings range from US railroads to electric utilities and retail.
But the 92-year-old investor, who has credited the growth of the US economy for the success of Berkshire Hathaway in the past, is no longer optimistic.
“Most of our businesses will report lower earnings this year than last year,” Buffett said last weekend at an event. The “incredible period” for the US economy has come to an end over the past six months, he added.
Berkshire raised its cash reserves by $2 billion to $130.60 billion in Q1/2023, the highest level since late 2021 when shares entered a bear cycle. Also, the firm has a huge amount of its cash in short-term T-bills and bank deposits thanks to higher interest rates close to 5%.
In other words, Buffett is preparing for a potential stock market crash, especially as the US banking crisis continues to unfold (eg PacWest Bancorp and Western Alliance Bancorp).
Bitcoin price remains correlated with the Nasdaq
The growing possibility of a global recession also risks putting downward pressure on Bitcoin, whose 100-week correlation with the Nasdaq reached its all-time high of around 0.42%.
Moreover, Bloomberg Intelligence analyst Mike McGlone expects that the BTC price will likely be the leading indicator of a stock crash.
“Bitcoin May Accelerate Decline for Risk Assets – If the Worst Is Not Over for Risk Assets, Bitcoin May Lead the Way Lower.” noted McGlone, adding:
“Bitcoin is up about 70% in 2023 through May 2 vs. 20% for the stock index, and that may have bounced within broader bear markets. Fed [is] continued tightening in May, and [is] more likely to stay the course unless risk assets fall to ease inflation, could portend a loss-loss.”
In the short term, there are little expectations from the US consumer price index report on 10 May to curb inflation in April. According to Bloomberg’s survey, economists 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 is likely to prompt the Fed to consider pausing or even cutting rates in an extreme scenario.
Currently, Fed Funds futures data suggest at least five rate cuts between May 2023 and January 2024 are likely – which could pour cold water on Buffett’s risk-off strategy.
Can Bitcoin Price Fall Below $25K Again?
Bitcoin’s price has fallen about 6% in the past week, trading as low as $27,350 on May 9.
Notably, this has pulled BTC’s price below its 50-day exponential moving average (50-day EMA; the red wave) near $27,950.
Bitcoin bears now see $27,000 as the next downside target based on the level’s recent history.
A decisive break below the $27,000 support, primarily in the event of further interest rate hikes, could then pull BTC/USD down to its 200-day EMA (the blue wave) near $24,600. In other words, a decrease of 10% by June.
Conversely, a pullback from $27,000 raises the possibility of BTC price retesting $30,000 as resistance and resuming the uptrend of recent months.
Related: Analysts Disagree on Fed, US Debt Ceiling Impact on Bitcoin Price
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.
