crypto's fall in 3 charts

 
  * Bitcoin is down 40% to start the year as investors sell risk assets.  
  * Stifel's Barry Bannister is warning of further downside is ahead.
  * He said bitcoin could fall as low as $15,000, downside of 47% from
    current levels.

After its rally in March back toward its January levels, bitcoin
<https://markets.businessinsider.com/currencies/btc-usd> is again biting
the dust in 2022.

Bitcoin is down 40% on the year after falling more than 28% since May 4
alone. Much of the broader crypto world has followed suit.



According to Stifel 's
Chief US Equity Strategist Barry Bannister
, the price of
the biggest cryptocurrency in the world by market cap

Market capitalization tells you how much a company is worth, and whether
buying its stock suits your overall investing strategy
Market capitalization is the total worth of a company's outstanding stock. It indicates a company's size and investment value in terms of shares. still has further downside.

In a note to clients on Thursday, Bannister shared several charts
showing why he thinks more pain is ahead for bitcoin — he said he
believes bitcoin's price could fall another 47% to $15,000. Below are
three of Bannister's charts.


3 charts that show why bitcoin has further to fall

The first is how bitcoin's price moves compared with stocks with changes
in growth in the global M2 money supply.

Investors have been selling risk assets like stocks and cryptocurrencies
— which tend to perform better in more liquid economic environments — in
anticipation of tighter monetary policy than originally expected amid
four-decade-high inflation, and as geopolitical turmoil constrains
supply chains.

To cool off inflation, the Federal Reserve is starting to pull money out by reducing the assets they hold, and is hiking interest rates by 50 basis points at a time, the fastest clip in two decades . These policy moves are designed to slow down economic activity.

Since the start of the year the S&P 500 is down more than
19%, and growth stock-heavy Nasdaq 100 is down more than 26%.

But according to Bannister, bitcoin is much more vulnerable to
de-risking and shrinking liquidity
What is liquidity? It's how easily you can sell an asset for cash —
here's when and why it matters to your finances Liquidity refers the levels of cash on hand, and how quickly something can be converted into cash—how sellable or marketable it is.


than stocks. The charts below compare stocks' movements alongside
liquidity fluctuations compared to bitcoin's. Bitcoin moves much more
dramatically when money supply changes.

Second, bitcoin's price movements are correlated with manufacturing
activity indices, which are indicators of future economic growth,
Bannister said.

Bannister said that given the several headwinds for the economy, the
outlook for bitcoin's price performance is also poor.

"Bitcoin is GDP-sensitive, with Bitcoin falling as the PMI Manufacturing
index falls as we expect, indicating a capitulatory Bitcoin drop ahead,"
Bannister said. "As the Purchasing Manager Index for Manufacturing, an
excellent indicator for GDP and Industrial production, weakens (our view
through 3Q22) due to Fed tightening, war fall-out (not the nuclear
type...yet) and China's 2021 tightening plus their 2022 COVID, the
Bitcoin price may plunge."

GDP fell in the first quarter of 2022
for the first time since Q2 2020, and the PMI manufacturing index fell to its lowest level since September 2020  in April.

Below is bitcoin's relationship with the ISM PMI Index measuring
manufacturing activity. The index is expected to show lackluster
readings in the months ahead, and Bannister believes this could mean
downside to $15,000 for bitcoin.

And third, bitcoin tends to underperform relative to gold when financial
conditions tighten, Bannister said.

The below chart shows bitcoin's outperformance when the Fed turns
dovish, and vice versa. Gold has started to outperform bitcoin in recent
months as the Fed has increasingly become more hawkish.

How hawkish the Fed will be the rest of the year remains to be seen. If
inflation begins to moderate — which it did slightly in April
 — the Fed could back off of its tightening spree in order to avoid triggering a recession What is a recession? How economists define periods of economic downturn
A recession is a period of economic decline spread across the economy that
occurs more often than you may think. Here's why and how they happen.

OTOH, 

Risks in stablecoins can be more manageable if they are backed by reserve assets.

In Fitch's opinion, stablecoins backed by reserve assets with clear fiat currency value face a fundamentally different set of credit issues to algorithmic stablecoins. In such cases, the stablecoin’s stability risks can be more manageable, depending on various factors, notably the safety and liquidity of the reserve assets.

Other factors relevant to the credit profiles of the issuers of reserve-backed stablecoins include regulatory risk, counterparty risk (including reserve custodians), transparency over reserves and the extent to which the underlying assets are truly uncorrelated, the legal rights of stablecoin holders, and governance and operational risks, as per Fitch's latest report.

Fitch said, "there could be significant negative repercussions for cryptocurrencies and digital finance if investors lose confidence in stablecoins. The latter play an important role in catalysing the crypto ecosystem more broadly, by providing a stable link to fiat-currency financial markets."