‘We do see bitcoin back above $40,000,’ strategist says
Fundstrat Global Advisors Managing Director & Global Head of Technical Strategy Mark Newton joins Yahoo Finance Live to discuss crypto, volatility, and the outlook on bitcoin and the equity market.
Video Transcript
BRIAN CHEUNG: Let’s turn to our Crypto Corner, presented by Intuit TurboTax. Bitcoin is higher today after recovering from its January lows, but it’s still trading– well, it’s actually trading just north of $40,000 now. It looks like $40,200 or so. The world’s largest cryptocurrency by market cap has lost roughly half its value since its record high back in November when it surpassed $68,000.
So our next guest, though, says a key test for Bitcoin could be on the horizon. So to discuss more, Fundstrat Global Advisors managing director and global head of technical strategy, Mark Newton joins us live from Connecticut. Mark, great to have you on the program this morning. Give us a little bit more of the outlay for what we should expect from Bitcoin. Do you expect it to go lower?
MARK NEWTON: Well, I think today’s development is actually pretty important and positive, Brian, where we do see Bitcoin now back above $40,000. So that’s key for a couple of different reasons. One is that from a technical perspective, you’re actually breaking the entire downtrend from the beginning of November. And that’s when Bitcoin peaked out, along with many other points. We have seen sentiment get pretty washed out in the last couple of months. But now you’re seeing evidence of the retail trader gradually starting to put more money back to work.
I think last week, I did see some evidence of capitulation. And I think that is interesting from a sentiment perspective. So, you know, my own cycle study suggests that the larger low happens sometime this spring. But I think, you know, many coins are doing very, very well today. And it looks to be an important short-term move.
AKIKO FUJITA: Mark, I know we always need to be cautious about calling any kind of correlation when it comes to crypto, but it does feel like Bitcoin has really been trading in tandem with equities. Every time we see a big sell-off, a risk off, it sort of moves into the crypto space as well. Does that suggest that things could still remain a little choppy if we’re looking at the broader markets, and they continue to trade the way they have?
MARK NEWTON: Well, I think choppy is right. I think we’re in a new era of volatility. And when you look at Bitcoin, I mean we talked almost exactly on the same day as the broader equity space. And I look at the value line geometric, which is 1,700 equal weighted names, and that peaked out on November the 8th. And that’s precisely when most cryptocurrencies did.
And so then we recently, in the last week, we’ve seen a lot of evidence of stabilization. And the final week of January saw some good evidence of that trying to bottom out. So right now, we seem to be moving in lockstep with what’s happening with equities. And we’ve seen a little bit of a recovery now in the equity market. So I think that is a short-term positive for crypto, in my view, over the next four to six weeks.
BRIAN CHEUNG: What about correlated to other assets with respect to the idea of it perhaps being an inflation hedge? I mean, the jury is still out on whether or not it truly is an inflation hedge, if people are treating it like an inflation hedge, but do you see any comparisons to gold or other types of risk-off assets when it comes to the possible trajectory in the future?
MARK NEWTON: Well, certainly not with gold. I mean, look, these each run in their own cycles. I mean, I look at Bitcoin, and it has a pretty remarkable 42-week and 90-week cycle. When you combine those, you know, they pinpointed the exact highs and lows over the last dozen years. They gave us peaks in 2017 and in the early part of last year in the spring. And they show still that we could be under pressure until about April or May on an intermediate term basis.
And so, you know, I don’t know about Bitcoin as an inflation hedge. I think that everybody is sort of scratching their head, trying to figure out if inflation is here to stay or if it is transitory. And you can make great arguments in both cases. But I think, you know, generally, you know, we’re in one of those periods where we all know that cryptocurrencies are quite volatile. They can be down 50% to 80%, but they’re still within longer term uptrends.
And, you know, if you can use technical analysis to finetune areas where sentiment has gotten very, very negative like we’ve seen, momentum now is starting to improve. You’re starting to see some retail flows back. So I think those are generally positive to suggest that on a short-term basis, we can certainly see a lift in Bitcoin in the month of February. As to whether it’s long lasting or not, you know, my own cycle studies suggest it might be a little bit premature.
AKIKO FUJITA: And finally, Mark, there’s a lot of people who are looking at their portfolios right now, trying to figure out what that diversification looks like. In terms of allocation or exposure to crypto, what do you tell some of those clients? Is it, you know, just given what’s playing out in the equity space, is it a 1%, 2%? How should they be looking at the space?
MARK NEWTON: I think we know that we’ve all got our own levels of risk tolerance and how to diversify. And so that’s really, really key. It’s very difficult for people that have a short-term time frame to recommend they have any meaningful exposure to something that can drop, you know, 40% to 50% in a couple of months’ time, like we’ve seen in Bitcoin. And that’s been the case historically.
So I don’t make recommendations on allocations of a percentage. I think everybody’s got their own level, whether it be 1% or 5%. Certainly, if we have more evidence that it’s starting to trend up, then we can say it’s probably better to have at least a few percent of your long-term holdings in Bitcoin. And it has been one of the best performing assets over time. And so, you know, you just have to be able to have your own risk tolerance and know how to deal with the volatility. And for everybody, that’s a different question.
AKIKO FUJITA: Mark Newton, Fundstrat Global Advisors managing director and global head of technical strategy, good to talk to you.