Goldman Sachs has indicated that the recent selloff in U.S. equities might not be over, sparking concerns across the investment landscape, especially regarding Bitcoin and other cryptocurrencies. In a note shared with clients and highlighted by Bloomberg, the bank cautioned that market stress remains elevated and liquidity is thin, which could lead to heightened volatility as trend-following funds, known as Commodity Trading Advisers (CTAs), look to cut their exposure.
According to Goldman, the S&P 500 has reached a critical short-term level, prompting these funds to initiate sales. They estimate that CTAs could sell about $33 billion worth of U.S. equities this week alone. Should market conditions worsen, their models suggest that an additional $80 billion in equity selling could occur over the following month. The implications of this selling pressure extend beyond equities, potentially affecting Bitcoin and other crypto assets, which often react similarly to shifts in broader market sentiment.
The trading desk pointed out that even if the equity markets stabilize, CTAs are likely to maintain a net selling position. They noted a concerning rise in their internal Panic Index, which has approached levels typically associated with extreme market fear. Additionally, a notable shift toward “short gamma” positioning among options dealers could exacerbate market movements, forcing these dealers to buy during rallies and sell during declines.
The potential for sustained volatility in U.S. stocks poses a significant risk for cryptocurrencies, typically viewed as high-risk assets. If equity volatility continues to increase, Bitcoin might suffer pressure through portfolio deleveraging, compounded by a generally reduced appetite for risk among investors. Furthermore, the thin liquidity in crypto markets could amplify price swings, particularly as leverage remains a significant factor in short-term asset movements.
This backdrop of uncertainty has reignited discussions about investment allocations between Bitcoin and gold. Ark Invest founder Cathie Wood recently expressed preference for Bitcoin over gold amid current market conditions, arguing that traditional factors that usually drive gold rallies are absent. Similarly, analysts at JPMorgan have highlighted evolving dynamics between the two assets, suggesting that Bitcoin’s risk-adjusted appeal has improved. They noted that amidst increased gold volatility and its strong performance, Bitcoin’s volatility relative to gold has reached a record low, making it a more attractive option for long-term investors. Despite the recent downturn in digital assets, liquidation activity in the crypto markets has remained limited compared to previous downturns.
Investors are positioned at a critical juncture, weighing the potential for continued equity volatility against the allure of alternative assets like Bitcoin, as conversations surrounding its viability as a store-of-value persist.
