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U.S. equities are poised for more pain – and bitcoin (BTC-USD) is set to feel the sting, too, according to one of Wall Street’s most bearish strategists.
Like high-beta stocks, the cryptocurrency is unlikely to reach a low until leading economic indicators bottom, Piper Sandler Chief Investment Strategist Michael Kantrowitz said Wednesday in an interview with Yahoo Finance Live.
Over the past two years, the coin has traded in tandem with the relative performance of high- to low-beta stocks, or individual assets that fluctuate along with the broader market, Kantrowitz explained.
"So it's essentially a beta trade," Kantrowitz said. "And that relationship has been locked tight, really, for the last two years or so. And so that means it's a macro trade because beta is a macro factor.
Investors have sold U.S. stocks in recent sessions after assertions from Federal Reserve officials that the bank will continue to intervene aggressively to restore price stability, even at the expense of economic growth.
On Wednesday, all three major indexes each capped August with losses of more than 4%, erasing a growing portion of their gains from a rally earlier this summer.
“Anything that looks, walks, or talks like beta — bitcoin is a clear example — is something we definitely want to avoid,” Kantrowitz said. "And so we've seen a bit of a stabilization in things like Bitcoin and beta in this market rally. That's, I think, over, and that's why we're beginning to see more pain ahead."
Similarly, bitcoin (BTC-USD) traded down to $20,195.40 as of Wednesday afternoon, a loss of more than 13% for the month, according to Yahoo Finance data.
As volatility continues across risk assets, Kantrowitz expects the token may fall as low as $15,000, noting, however, that the bearish target is not a long-term view.
“It’s purely a cyclical view with the realization that it’s trading exactly like the market today, so until we see a bottom in the economy, I don’t think we’re going to see a bottom in bitcoin,” he said.
As for the broader market, Kantrowitz currently maintains a 3,400 year-end price target on the S&P 500 and sees declining earnings and rising rates eventually wearing down market bulls.
"Earnings expectations are still way too high," Kantrowitz said. "I don't think that's unusual or out of consensus at all. We've been saying that all year, and pretty much most people are saying it today...We think that estimate is going to fall about another 6% by year end to about $230. And as that takes place, we think there's also going to be pressure on the market multiple as we see credit spreads widen and the employment data deteriorate."