Bitcoin Falling to $50K Would Be a 'Blessing' For Investors: Fundstrat

Bitcoin is essentially flat over the last month — and yet the night and day panic and relief felt among crypto investors could not tell a more different story.

Investors had to digest the fear that was sparked after the largest public Bitcoin holder, Strategy, sold some of its Bitcoin stash for the first time in years, before raising another $466 million by issuing common stock this past week.

And with that, suddenly the risk-reward for Bitcoin is shifting in a positive direction — so much so that any dip might be a blessing to investors jumping back in, according to Fundstrat Head of Digital Asset Strategy Sean Farrell.

“I do think that we are getting to the point where the risk-reward for crypto is looking a lot better than equities,” Farrell said in a new interview Monday. "If we get to that low $50K range, I'll certainly be backing up the truck ... I think it would be a huge, huge opportunity for folks."

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To be sure, Farrell's outlook remains measured over the next several months as macroeconomic conditions continue to weigh on liquidity-sensitive assets. Expectations for interest-rate hikes have returned, pushing real yields higher, while renewed instability in the Middle East has complicated what had briefly looked like a more dovish shift in rate markets. Those conditions have kept Farrell from recommending investors go all in over a short time horizon.

“It’s just, again, a subpar risk-reward here for going all in if your time horizon is going to be, say, three months,” he said. But the balance for longer-term investors is beginning to change.

While equities have continued to benefit from strong earnings growth, Farrell believes crypto is approaching the point where its potential upside increasingly compensates investors for the risks still hanging over the market.

That shift helps explain how Farrell can remain cautious about Bitcoin’s immediate path while simultaneously viewing another selloff as an opportunity.

For much of the past year, Bitcoin has struggled to keep pace with productive assets because earnings growth has outpaced the expansion of global liquidity. In that environment, investors have had little reason to abandon companies producing rapidly growing profits in favor of monetary assets whose performance is more dependent on expanding liquidity.

“If you look at the growth in global liquidity and compare that to the growth in earnings, you’ve had the growth in earnings per share outpace the growth in liquidity,” Farrell said. “In that environment, you should favor those productive assets that are growing at a rapid pace.”

The more important question is what happens when that relationship begins to reverse.

Farrell expects the dynamic to change over the next three to six months, potentially pushing investors back toward Bitcoin and other assets that tend to benefit when liquidity expands.

“You’re going to have people reach for liquidity-sensitive assets once again, these monetary hedges,” he said.

Of course, there are still concerns about Strategy potentially being pressured into selling more of its Bitcoin stash. Strategy CEO Phong Le told Coinage last month that the company remains committed to paying its dividend on its preferred shares STRC. But until those recover to their $100 par value, the company may only be able to raise cash by issuing more of its common stock MSTR, or by selling its Bitcoin.

If Bitcoin failed to appreciate over a prolonged period, Farrell reiterated a view shared by Simplify Asset Management Chief Strategist Mike Green that the company’s holdings could slowly be consumed by those obligations.

“If Bitcoin just were to meander around where it is right now into perpetuity, I think the Bitcoin on Strategy’s balance sheet would essentially act as this melting ice cube,” he said. “[Strategy Chairman Michael Saylor] would continue to sell Bitcoin to satisfy those preferred dividends, and you’d probably just end up seeing that balance asymptote towards zero.”

Still, Farrell believes the immediate danger of a disorderly unwind has diminished.

Strategy has been raising cash and formalizing a new capital-markets framework that explicitly identifies Bitcoin as a potential source of funding. That may reduce some of the reflexive upside investors once associated with the company, but it also makes a sudden collapse less likely.

Compared with the situation only a few weeks earlier, Farrell said much of the “spiral risk” had been mitigated.

“There’s no imminent unwind risk,” he said. Even if Strategy remains a longer-term overhang, the market no longer appears to be treating every action by the company as the beginning of a forced liquidation cycle.

Bitcoin may still fall toward the downside targets Farrell laid out earlier in the year. But after the market absorbed Strategy’s latest moves without triggering the feared spiral, the opportunity presented by such a decline could now be far greater than the danger.

For investors with a longer time horizon, a return to the low $50,000s would not necessarily be a reason to abandon Bitcoin. It could be the moment to “back up the truck.”

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