Thursday, 20 June 2024

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Warren Buffett dumps $13.3B in stocks — A warning sign for Bitcoin and risk-assets?

Warren Buffett dumps $13.3B in stocks — A warning sign for Bitcoin and risk-assets?

Warren Buffett moving into cash suggests that he’s bracing for a possible collapse in risk-on asset prices. With Bitcoin (BTC) up 70% year-to-date and correlated with equities, 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 equities and increased exposure in cash and U.S. Treasuries in Q1, its latest quarterly earnings report shows. Meanwhile, it channeled $4.4 billion toward purchasing its own stock and $2.9 billion on the shares of other publicly-traded companies.

The market considers Berkshire Hathaway’s performance as a key indicator to gauge the U.S. economy’s health, given the firm’s holdings range from American railroad to electric utilities and retail businesses.

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

“The majority 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 been coming 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 the end of 2021 when equities entered a bear cycle. Moreover, the firm holds a vast amount of its cash in short-term Treasury bills and bank deposits thanks to higher interest rates near 5%. 

In other words, Buffett is preparing for a potential stock market crash, particularly as the U.S. banking crisis continues to unfold (e.g. PacWest Bancorp and Western Alliance Bancorp) .

Bitcoin price stays correlated with Nasdaq 

The increasing possibility of a global recession also risks putting downside pressure on Bitcoin, whose 100-week correlation with the Nasdaq reached its highest level of about 0.42%.

Moreover, Bloomberg Intelligence analyst Mike McGlone expects that BTC price would likely be the leading indicator for a stock crash. 

“Bitcoin could pace declines for risk assets — If the worst isn’t over for risk assets, Bitcoin may lead the way lower,” noted McGlone, adding:

“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…

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