No major recession crash is expected, as there is optimism regarding Bitcoin and cryptocurrency.

In the world of financial markets, Bitcoin and cryptocurrencies, there is often a sense of fear and uncertainty. Lately, there has been a lot of speculation about an upcoming recession and the possibility of a major crash in risk assets like Bitcoin. Many believe that Bitcoin will rise to $40,000 and then crash.

However, macro analyst Alex Krueger presents a different perspective. In his research report, Krueger debunks the prevalent bearish theses and explains why he remains optimistic about risk assets, including Bitcoin and cryptocurrencies.

1/ A recession is coming, risk assets are expensive, and stocks always hit bottom during recessions caused by deleveraging.

But is a major crash inevitable?

Not at all

In this research report, we explore why the prevailing bearish theses are flawed and why we are bullish on risk assets.

— Alex Krueger (@krugermacro) July 3, 2023

Debunking Bearish Theses For Risk Assets Like Bitcoin

According to Krueger, if there is a recession coming, it has been highly anticipated. This anticipation has led market participants and economic actors to prepare themselves, reducing the probability and potential impact of the recession. As Krueger astutely points out, “What truly matters is not whether data is positive or negative, but whether it is better or worse than what is expected.”

One flawed notion associated with recessions is the belief that risk assets must hit bottom when a recession occurs. Krueger highlights the limited sample size of US recessions and provides a counterexample from Germany, where the DAX has reached all-time highs despite the country being in a recession. This serves as a reminder that the relationship between recessions and risk assets is not as straightforward as some might think.

Valuations, another key aspect of market analysis, can be subjective and dependent on various factors. Krueger emphasizes that biases in data and the selection of timeframes can significantly affect valuations. While some metrics might suggest overvaluation, Krueger suggests looking closer at fair pricing indicators, such as the forward price-to-earnings ratio for the S&P 500 ex FAANG. By taking a nuanced approach, investors can gain a more accurate understanding of the market.

In addition, the emergence of artificial intelligence (AI) presents a revolutionary opportunity. Krueger highlights the ongoing AI revolution, comparing it to the transformative power of the internet and industrial revolution. He notes that AI has the potential to replace a significant portion of current employment and boost productivity growth, ultimately driving global GDP higher. Krueger says, “Is an AI bubble forming? Likely so, and it is just getting started!”

Addressing concerns about liquidity, Krueger challenges the belief that liquidity alone drives the prices of risk assets. He argues that positioning, interest rates, economic growth, valuations, and expectations collectively play a more significant role. While some analysts view the refilling of the Treasury General Account (TGA) as a potential headwind for Bitcoin and cryptocurrencies, Krueger points out that historical evidence suggests the TGA’s impact on the market has been minimal. He argues:

The TGA is known to be uncorrelated with risk assets for extended periods of time. In fact, the four largest TGA rebuilds over the last two decades have had minimal impact on the market.

The Best Is Yet To Come

Considering the monetary policy landscape, Krueger notes that the tightening cycle by the US Federal Reserve is coming to an end. With most of the rate hikes already implemented, a few additional hikes are unlikely to cause a significant shift. Krueger reassures investors that the Fed’s tightening cycle is nearly 90% complete, reducing the perceived risk of a crash in risk assets.

Positioning is another factor that Krueger highlights. He points out that market participants are currently holding a significant amount of cash, as indicated by record-high money market funds and institutional holdings. This suggests that many investors have adopted a cautious approach, which could serve as a buffer against potential downside risks. Krueger states:

Según el ICI, los fondos del mercado monetario alcanzaron un récord de $5.4 billones, mientras que las instituciones tienen $3.4 billones hasta el 28 de junio, aproximadamente un 2% por encima del nivel más alto anterior registrado, que ocurrió en mayo de 2020, el punto más oscuro de la pandemia.

En resumen, el análisis de Krüger ofrece una perspectiva refrescante en medio de una ola de sentimiento bajista. Si bien las condiciones del mercado siguen siendo impredecibles, Krüger concluye:

Todos están bajistas. Pero la recesión ha sido anticipada, la revolución de la IA es real, la Reserva Federal está casi terminada y el mercado tiene mucho efectivo. No vemos razón para cambiar nuestra postura alcista, que hemos mantenido durante todo 2023. La tendencia es tu amiga. Y la tendencia es al alza.

En el momento de la publicación, el precio de Bitcoin había subido un 1.2% en las últimas 24 horas, cotizando a $31,050.