Analyst Who Called Bitcoin's Pre-Halving Rally to $70K Turns Bearish

BY Coindesk | TREASURY | 04/16/24 01:50 AM EDT By Omkar Godbole
  • Dwindling odds of Fed rate cuts and rising bond yields have weakened the bullish case in cryptocurrencies and stocks.
  • Flows into the U.S.-listed spot BTC ETFs have dried.

The analyst who predicted bitcoin?s {{BTC}} bottom in November 2022 and the recent pre-halving surge to record highs has turned bearish on risk assets, including technology stocks and cryptocurrencies.

?Our growing concern is that risk assets (stocks and crypto) are teetering on the edge of a significant price correction. The primary trigger is the unexpected and persistent inflation. With the bond market now projecting less than three cuts and 10-year Treasury Yields surpassing 4.50%, we may have arrived at a crucial tipping point for risk assets,? Markus Thielen, founder of 10X Research, said in a note to clients Tuesday.

?We sold all our tech stocks last night (at the open) as the Nasdaq is trading very poorly and reacting to the higher bond yield. We only hold a few high-conviction crypto coins. Overall, we are bearish risk assets (stocks + crypto).? Thielen added.

Traders have recently scaled back pricing for 25 basis point Fed rate cuts this year to less than three from six at the beginning of the year, data from CMEGroup show.

The so-called hawkish repricing, spurred by sticky U.S. inflation and a resilient labor market and economy, has lifted the 10-year Treasury yield 40 basis points to 4.61% this month, the highest since November 2023. The sharp rise in the so-called risk-free rate has dented the appeal of investing in high-risk/high-return assets like technology stocks and cryptocurrencies.

"Most of this 2023/2024 bitcoin rally is driven by expectations that interest rates would be cut, and this narrative is being seriously challenged now," Thielen noted, adding that inflows into the spot exchange-traded funds (ETFs) have dried.

The U.S. Securities and Exchange Commission (SEC) greenlighted nearly a dozen spot BTC exchange-traded funds (ETFs) in January, allowing investors to take exposure to the cryptocurrency without having to own and store it.

Since then, nearly $12 billion has flowed into these investment vehicles. However, most flows happened last quarter, powering the cryptocurrency higher, and the demand has faded this month.

Bitcoin ETF inflows. (10x Research)

The 5-day average of the net inflows into the spot ETFs has dropped to zero.

"After an initial novelty hype, ETF flows tend to run out unless prices continue increasing?which they have not done since early March. With two?to 17% drawdowns, those investors might stay on the sidelines," Thielen explained.

Some observers expect the correction to gather pace once the hype surrounding the Bitcoin network's quadrennial mining reward halving due on April 20 fades. The inbuild code will reduce the per-block coin emission to 3.125 BTC from 6.25 BTC, effectively halving the pace of supply expansion.

Bitcoin changed hands at $62,600, representing a 42% year-to-date gain, CoinDesk data show. The CoinDesk 20 Index, a broader market index, stood at 2119 points at press time, up 17% for the year.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.