• The risky nature of bitcoin means the cryptocurrency is a great tool for investors to identify a bottom in the stock market, according to Stifel.
• Stifel said tighter financial conditions could send bitcoin down sharply to around $15,000.
• “We believe Bitcoin is overdue for risk capitulation, and a washout we see coming for Bitcoin is helping to time an equity bottom,” Stifel said.

The speculative nature of bitcoin and its risk characteristics mean it’s a great tool for investors to identify a bottom in the stock market, Stifel’s Barry Bannister said in a note last week.

Bitcoin has been highly correlated to tech stocks in 2022, rising and falling in line with stocks as investors grapple with a crunch

Federal Reserve

and rising inflation.

“We think bitcoin is lagging risk’s capitulation, and a washout we see coming for bitcoin is helping to time a lower,” Bannister said.

He expects bitcoin to fall well below $30,000 and drop another $10,000 to $15,000. This would put bitcoin between $15,000 and $20,000, which is roughly where the cryptocurrency peaked in late 2017.

This portends more declines to come for the stock market, but even more so for bitcoin, given the highly speculative nature of bitcoin and its lack of underlying earnings and cash flow on which stocks can trade. fall back during times of stress.

“Stocks thrive on excess

liquidity

, and the drop in global M2 money supply is weighing on the S&P 500, but more so on bitcoin. Tighter financial conditions are also expected to weaken bitcoin sharply,” Bannister explained.

The equity strategist also pointed to bitcoin’s sensitivity to GDP, given its propensity to drop when the manufacturing PMI declines, “indicating that a final bitcoin capitulation decline may still be ahead,” as Stifel expects until the PMI falls again in the third quarter of 2022.

Since Bannister’s note, bitcoin has traded below the $30,000 level, and technical analyst Katie Stockton sees potential for the cryptocurrency to test the $18,000 level if support at 27,200 $ does not hold.

While he sees a lot more downside for bitcoin, he only expects a bit more downside for stocks, estimating that the S&P 500 will only fall another 5% to just below the level of 4,000. But when bitcoin finds its last bottom, it will likely mark a good time to buy stocks, according to Bannister.