US-based investment bank Piper Sandler warned that Bitcoin could retreat in the coming weeks due to its high correlation with stock markets, despite its strong performance in recent months.
Michael Kantrowitz, chief investment strategist at Piper Sandler, warned in an investment note published Tuesday that profits should be taken from stocks that have risen the most in the relief rally that has continued since early April.
“Markets have shifted from the inflationary recession scenario they priced in on April 8th to what is now being described as a ‘Goldilocks’ economic outlook, neither too hot nor too cold. The stocks most at risk during this period are high-beta, low-quality stocks that appreciate without improving their earnings outlook,” Kantrowitz said.
Kantrowitz, claiming that a similar risk exists for Bitcoin, said, “Cryptocurrency is very closely directionally correlated with risk appetite in equity markets. Therefore, any sell-off in which a macroeconomic risk is priced in, Bitcoin is likely to decline in the short term.”
Bitcoin, which has gained 54% since its market bottom in April, reached a new all-time high last week. This rise was driven by increased interest from institutional investors through Bitcoin ETFs and the strategy of holding BTC in corporate treasuries. The S&P 500 index returned a more modest 27% during the same period.
While Bitcoin has been less volatile this year, it still closely aligns with global risk appetite. For example, after President Donald Trump announced new tariffs on April 3rd, Bitcoin fell 5%, while the S&P 500 fell 4%. This suggests that Bitcoin still trades in tandem with riskier assets during periods of heightened macroeconomic fears.
Piper Sandler notes that the August 1st tariff deadline hasn’t been sufficiently priced into the markets. However, a potential surprise could disrupt the current “Goldilocks” environment, with a modest increase in consumer prices expected over the next three to four months. Kantrowitz noted that this scenario could complicate market expectations for a short-term interest rate cut.
August is historically known as a weak month for both Bitcoin and stocks due to the decline in trading volume during the summer months. Kantrowitz emphasized that his warnings were not a general negative outlook for US stock markets, adding, “This is more of a tactical and risk-management move. While valuations are expensive, we expect earnings to continue to drive stocks higher, but with less speculative leadership.”
*This is not investment advice.