Crypto investors should cut exposure by 50% if bitcoin prices fall below $22,800, the report said.
Matrixport, a crypto exchange and lending platform, said it has been bullish on digital assets since mid-December, but signals from the U.S. economy are now forcing it to be more cautious.
In a research report published early Friday, the firm said it is still not the time to be outright bearish, but suggested cutting exposure by 50% if bitcoin (BTC) prices fall below $22,800. The largest cryptocurrency by market cap slumped overnight and was trading around $22,400 at publication time.
U.S. stock markets have started to sell off again and U.S. bond yields are moving higher, the note said. The 2-year Treasury now yields about 4.87%, above the November 2022 high of 4.8%, and the difference, or spread, between the 2-year and 10-year yields is at an “unhealthy level of -0.87%.”
The rallying U.S. dollar is another negative sign and “adds to the restrictive monetary policy overhang,” wrote Markus Thielen, head of research.
Daily crypto trading volumes have dropped to $60 billion from around $80 billion, which shows less interest from traders to engage with the crypto market, “while the ongoing outflows from Paxos-Binance (BUSD) stablecoin have resulted in the market cap declining to now $10 billion,” the report said. A stablecoin is a type of cryptocurrency whose value is pegged to another asset, such as the U.S. dollar or gold.
The 60-day correlation between bitcoin and the Nasdaq stock index is at its lowest level since December 2021, when the U.S. Federal Reserve first started to communicate to the market that interest-rate increases were on the horizon, the report noted.
“This correlation breakdown is supportive for holding long crypto exposure as investors can hold onto the future technological growth expectations while the downside from macro data appears to be more impactful for U.S. listed technology shares.”
Matrixport said it remains convinced that U.S. inflation will fall sharply this year and that as a result, the Fed will stop raising interest rates, setting up the market for a relief rally.