- Stocks and cryptocurrencies have both plummeted this year as the Federal Reserve begins hiking interest rates.
- There’s more pain ahead for both asset classes, according to Valkyrie Investments CIO Steven McClurg.
- McClurg told Insider he’s expecting the S&P 500 to fall 30%, which could push bitcoin as low as $22,000.
It’s becoming increasingly difficult for crypto bulls to argue that bitcoin offers investors uncorrelated returns.
The two asset classes appear to now be correlated – and both could fall further over the next few months as the
raises interest rates, according to Steven McClurg.
“It’s disappointing, but not unexpected,” McClurg, the chief investment officer for Valkyrie Investments, which manages roughly $1 billion, told Insider in a recent interview. “Anytime there’s a complete market risk-off trade, funds will always sell out of their most liquid assets first – in this case, that’s bitcoin and the Nasdaq tech stocks.”
McClurg explained why he’s anticipating further downturn for stocks and laid out a scenario where bitcoin could plummet below $22,000.
Stock market outlook
In March, Fed Chair Jerome Powell announced that the central bank would start hiking interest rates. That badly hit growth stocks, which typically suffer during hiking cycles because borrowing becomes more expensive.
McClurg believes the Fed will remain hawkish over the next few months as it attempts to curb inflation, which is currently at a 40-year high of 8.3%, while GDP is at 3.4%.
“Stagflation isn’t just a risk, it’s a reality,” said. “And as long as inflation’s high, the Fed will keep pushing interest rates up.”
“At this point I’d expect the S&P 500 to drop another 30%,” McClurg added.
Target was one of the major stock market stories this week. Shares in the retailer plunged as much as 27% Wednesday after the company reported lower profits than expected – and the Dow Jones fell by 1,100 points the same day.
That could be a sign that the stock market’s teeing up for further carnage, McClurg said.
“Target may be a harbinger of things to come – the pain clearly isn’t over yet,” he told Insider.
Bitcoin to $22,000
Major indices sliding would likely have a knock-on effect on the price of bitcoin, according to McClurg. He believes the token will bottom out at around $25,000, and could drop as low as $22,000.
“When there’s a major downturn, the price of bitcoin can move very quickly,” McClurg told Insider. “I think it can drop as low as $22,000, but I’d be very surprised if it dropped below $18,000.”
It’s tempting for retail investors to buy the dip in these situations, but also highly risky. If they don’t buy bitcoin at the right time, they could incur further losses.
“I wouldn’t advise people to sell all their bitcoin right now, but I wouldn’t tell them to buy either,” McClurg said. “Once we get below $25,000 I’d consider buying again. But it’s understandable to feel reluctant to add any risk to a portfolio right now.”
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