The Wall Street bank says Bitcoin’s decline below key technical levels may foreshadow equity softness, though easing liquidity pressures could reignite a year-end rebound.
Bitcoin’s Decline Flags Risk for Equities
Citi analysts are cautioning that Bitcoin’s recent weakness may be an early signal of vulnerability for global equity markets — particularly the Nasdaq 100. The bank noted that Bitcoin’s price has fallen below its 55-day moving average, a level historically associated with weaker risk-adjusted returns in U.S. stocks.
“When Bitcoin trades above its 55-day average, the Nasdaq’s performance tends to improve significantly,” said the report led by Dirk Willer, Citi’s head of global macro strategy. “Its recent dip below that level is a warning that liquidity conditions remain tight.”
At the time of the report, Bitcoin was trading near $101,500, reflecting fading momentum after a strong rally earlier this year. Analysts say this pullback may be less about sentiment and more about tightening liquidity across financial markets.
Treasury Liquidity Pressures May Ease Soon
Citi’s research attributes Bitcoin’s decline to liquidity headwinds caused by the U.S. Treasury’s rebuilding of its cash balance and a $500 billion drop in bank reserves since mid-July. These actions have reduced market liquidity and placed pressure on risk assets — including both cryptocurrencies and equities.
However, the report suggests the pressure may soon subside. “Treasury balances are nearing levels where rebuilding typically pauses,” the analysts wrote, implying that liquidity could stabilize and support a recovery in both Bitcoin and equity markets as the year-end approaches.
AI Boom Keeps Stocks Resilient — But Risks Emerge
Despite Bitcoin’s downturn, U.S. equities have remained resilient thanks to ongoing enthusiasm around artificial intelligence (AI). Yet Citi warns that investors are beginning to question whether AI spending can justify its massive costs, as major tech firms face rising hardware expenses and supply constraints.
“Companies like Meta and Alphabet are increasingly turning to debt markets to fund data-center expansion,” the report noted, drawing comparisons to the late 1990s dot-com era.
Still, Citi said the current debt issuance reflects opportunity rather than distress, noting that corporate balance sheets remain strong. Even so, the bank cautioned that “a shift from cash to credit is rarely a positive sign for bondholders.”
Citi concludes that improving liquidity conditions may soon support a rebound in both Bitcoin and stocks, potentially restoring momentum to the traditional Santa Claus rally. For now, however, the message is clear — Bitcoin remains a leading indicator, and its current weakness could be a short-term warning for the broader market.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.