Bitcoin Fever May Have Peaked. Is Big Tech Next?


As goes crypto, so goes the


Nasdaq

? That’s what one Wall Street investment strategist seems to think.

Barry Bannister, chief equity strategist at Stifel, argues that

Bitcoin

prices may have topped when they traded above $73,000 in mid-March. Bitcoin has since slipped to around $67,500 late Friday. If the cryptocurrency continues falling, tech stocks could soon start sliding as well.

Bannister wrote in a report this week that both Bitcoin and the tech-heavy


Nasdaq 100

index “reflect the speculative fever fostered by cheap money after dovish Fed pivots.” That fever may now be peaking, he says, as investors are starting to price in fewer rate cuts from the Federal Reserve than they did at the end of last year.

“Bitcoin is a high-octane way to play the stock market,” Bannister said in an interview.

He points out that the cryptocurrency has tended to trade in tandem with highly-levered exchange-traded funds with a focus on tech—most notably the


ProShares UltraPro QQQ

ETF, which uses derivative contracts to try to boost the daily gains of the Nasdaq-100 index.

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The recent drop in Bitcoin prices is “a warning sign that Fed-related exuberance may be priced in” to most riskier assets, the strategist added.

Bannister projects Bitcoin could fall to $45,000 by October of this year, dragging down Big Tech with it.

Investors already appear to be souring on the Magnificent Seven stocks, which made up the bulk of last year’s market gains. The


Invesco S&P 500 Equal Weight

ETF—which doesn’t give outsize importance to

Apple,

Microsoft
,

Amazon
,

Alphabet
,

and other tech giants—has recently started to outperform the S&P 500, which is weighted by market cap.

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“When the equal-weighted S&P 500 outperforms the S&P 500, then value tends to outperform growth,” Bannister wrote in his report.

Tech stocks tied to Bitcoin—such as chip giant

Nvidia
,

software company

MicroStrategy
,

and crypto miners—could be particularly vulnerable. Many of these stocks are trading at valuations that could turn out to be unsustainable.

“My view is that Nvidia is phenomenal. The question is, Is it worth $2.2 trillion? The answer is maybe, but they are going to have to do an amazing job to deliver on that,” said David Miller, co-founder and chief investment officer of Catalyst Funds. Miller doesn’t own Nvidia shares.

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Miller said he wasn’t so sure if tech stocks were following the lead of Bitcoin, or if it was the other way around and that rallies in the Nasdaq were pushing cryptos higher. But it almost doesn’t matter: Miller conceded that there is “a strong correlation between Bitcoin and the Nasdaq.” And it’s clear that many Big Tech leaders in the Nasdaq are looking frothy.

Nvidia stock is now trading at around 35 times earnings estimates for this fiscal year. It’s the classic case of being priced for perfection. There are better bargains elsewhere.

“I find it humorous that Nvidia is up so much. There are plenty of other stocks that have gone up that much but are not as exciting,” said Meb Faber, chief investment officer with Cambria Investment Management. “Nvidia is not even in the right universe of valuation for us.”

Faber cited retailer

Abercrombie & Fitch
,

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which he doesn’t own, as an example of a “screaming cheap” stock that has actually done better than Nvidia over the past 12 months. But A&F trades for just 16 times earnings estimates for this year.

So investors can take solace in the fact that the stock market rally is finally broadening out. But it might be time to take their winning chips (literally, in the case of semiconductor stocks) off the table and lighten up on crypto.

Write to Paul R. La Monica at paul.lamonica@barrons.com





Read More: Bitcoin Fever May Have Peaked. Is Big Tech Next?

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