As a reflection of his declining trust in risky investments, the “Oracle of Omaha” raised Berkshire Hathaway’s cash holdings by $2 billion in the first quarter. Moving into cash shows that Warren Buffett is preparing for a potential decline in risk-on-asset values. Should Bitcoin investors prepare for a probable stock market meltdown, given that Bitcoin has increased 70% year-to-date and is associated with equities?
Buffett declares the “incredible period” to be ended.
According to the most recent quarterly earnings report, Buffett’s Berkshire Hathaway sold $13.30 billion worth of stocks and raised its holdings of cash and U.S. Treasury bonds in Q1. It spent $2.9 billion on shares of other publicly traded firms and $4.4 billion on the purchase of its stock.
Given that the company owns a variety of entities, including an American railroad, electric utilities, and retail companies, the market views Berkshire Hathaway’s performance as an important barometer for determining the state of the U.S. economy.
However, the 92-year-old billionaire, who in the past has attributed Berkshire Hathaway’s success to the expansion of the U.S. economy, is no longer upbeat.
Buffett stated last weekend at a gathering that “the majority of our businesses will report lower earnings this year than last year.” Over the past six months, the “incredible period” for the American economy has ended, he continued.
In the first quarter of 2023, Berkshire increased its cash reserves by $2 billion to $130.60 billion, the highest level since the end of 2021, when the bear market for stocks began. Due to increased interest rates approaching 5%, the company also keeps a significant portion of its capital in short-term Treasury bills and bank deposits.
In other words, while the U.S. financial crisis intensifies and shares of several banks, including PacWest Bancorp and Western Alliance Bancorp, are falling, Buffett is preparing for a probable stock market disaster.
Nasdaq and Bitcoin prices continue to be connected.
With Bitcoin’s 100-week correlation with the Nasdaq hitting its greatest level of approximately 0.42%, the growing likelihood of a global recession also raises the probability of downward pressure on the currency.
Additionally, according to Mike McGlone, a Bloomberg Intelligence analyst, the bitcoin price would probably be the first sign of a stock market catastrophe.
“Bitcoin could pace declines for risk assets — If the worst isn’t over for risk assets, Bitcoin may lead the way lower,” said McGlone. He continued:
“Bitcoin is up about 70% in 2023 to May 2 vs. 20% for the stock index, and those are maybe bounces within broader bear markets. The Fed [is] still tightening in May, and [is] more inclined to stay the course unless risk assets fall to ease inflation, may portend a lose-lose.“
Regarding April’s inflation, there aren’t many immediate expectations from the U.S. Consumer Price Index release on May 10. Bloomberg’s survey of analysts indicates that they anticipate core CPI will remain constant at approximately 5%, indicating that more rate rises are imminent.
On the other hand, a major decline in inflation will probably lead the Fed to think about halting or, in the worst-case scenario, reducing interest rates.
Currently, Fed funds futures data indicates that at least five rate cuts are anticipated between May 2023 and January 2024, which may jeopardize Buffett’s risk-off approach.
Could the price of Bitcoin ever drop below $25,000?
Over the previous week, Bitcoin’s price has dropped by over 6%, reaching a low of $27,350 on May 9.
In particular, this has caused BTC’s price to drop below its 50-day exponential moving average (50-day EMA; the red wave), which is close to $27,950.
Based on the historical performance of the level, bitcoin bears are now looking to sell for $27,000.
In the case of future rate rises, a clear break below the $27,000 support may subsequently push BTC/USD down to its 200-day EMA (the blue wave), which is close to $24,600. So by June, there will be a 10% decrease.
On the other hand, a bounce back from $27,000 raises the likelihood that the BTC price will test $30,000 again as resistance and resume its recent ascent.