Should crypto investors get ready for a big March crash?

The price of Bitcoin (BTC), Ethereum (ETH) and a number of other major cryptocurrencies have surged alongside stock markets over the last two months, seeing a total of more than US$200 billion ($296 billion) flow into the crypto market since the beginning of 2023.

At the time of writing Bitcoin has grown a little more than 42 per cent year-to-date and is currently trading at US$23,568 according to data from TradingView.

Cryptocurrencies are having a strong start to the year.Credit:Getty

While this year’s rally has boosted the confidence of many crypto investors, it seems likely that the good times might be coming to an end, with a number of analysts from major investment companies including Morgan Stanley and eToro predicting a stock market crash in the near future. Historically, sharp declines in stock prices tend to drag down the price of Bitcoin and other crypto assets.

One such expert, Josh Gilbert, a market analyst from eToro’s Australian trading desk, told The Chainsaw that the international investment firm is approaching the crypto market with a healthy dose of caution heading into March.

“We are short-term cautious on equities given the recent rally we have seen across the market, particularly with growth stocks. There are still plenty of headwinds with the inflation fight not over, rising bond yields and further rate hikes from the Fed,” said Gilbert.

Since 2020, cryptocurrency markets have traded in-line with US ‘growth’ stocks like Tesla (TSLA), Shopify (SHOP) and Spotify (SPOT). These riskier assets witnessed spectacular growth from late 2020 all the way through to November 2021, when the US Federal Reserve began hiking interest rates to combat inflation. This move saw money flee from speculative markets.

Gilbert explains that even though there’s good evidence to prove that the correlation between crypto and stocks is declining, he expects the US equities market to lead crypto into a price slump in the coming weeks.

Even though Gilbert remains bullish on Bitcoin and crypto in the long-term, he says that the US Federal Reserve’s meeting later this month may bear some bad news for investors, with more interest rates hikes predicted. Typically when the Federal Reserve raises interest rates, investors look to take their money out of risky assets like cryptocurrencies and growth stocks.

“This rally is likely to lose some steam throughout March, with sticky inflation and higher rate expectations likely to dampen investor sentiment,” added Gilbert.

Morgan Stanley analysts predict a market slump

Gilbert’s crypto predictions were echoed in an investment note from Morgan Stanley market analysts, first seen by Bloomberg.

US Federal Reserve chairman Jerome Powell will lead a meeting next month to discuss American interest rates.Credit:Bloomberg

“We think March is a high-risk month for the next leg lower in stocks,” Morgan Stanley analysts Michael Wilson wrote. Here Wilson is alluding to past data that shows stock markets often take a little breather between quarterly earnings seasons before dropping again.

“Stocks tend to figure it out a month early and trade lower and this cycle has illustrated that pattern perfectly,” Wilson wrote.

“We think this rally is a bull trap but recognise if these levels can hold, the equity market may have one last stand before we fully price the earnings downside,” the note added.

A cryptocurrency automated teller machine in San Francisco.Credit:Bloomberg

Wilson’s team of analysts have a habit of correctly predicting stock market moves. Last year the Wilson’s team of market strategists were ranked at No.1 in the Institutional Investor survey after they correctly predicted a number of major selloffs in stock markets.

Previously Wilson has said he expects the US stock market to fall to its lowest levels sometime in Autumn, forecasting the S&P 500, the index that tracks the performance of the 500 largest companies in America, to fall as much as 24 per cent in the first half of 2023.

Either way, if the predictions from Gilbert and Wilson are correct, it looks like investors could be wise to start battening down the hatches and getting for some unruly weather on the charts.

This piece originally appeared in The Chainsaw.

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