Wall Street giant Citi (C) says slow start to traditional Santa rally may not yet derail year-end stock rebound, but points to Bitcoin collapse as a warning sign.
Bitcoin’s trading behavior has historically mirrored the fortunes of the Nasdaq 100: When the cryptocurrency is above its 55-day moving average, Nasdaq returns improve markedly, analysts led by Dirk Willer wrote in Thursday’s report.
With bitcoin now below that threshold, analysts said the stock market’s risk-adjusted returns have weakened.
Analysts at the bank have largely attributed recent crypto weakness to tightening liquidity conditions. The U.S. Treasury’s replenishment of cash, combined with dwindling bank reserves, down about $500 billion since mid-July, has drained liquidity and put pressure on risky assets.
Analysts noted that while stocks have held up thanks to the artificial intelligence (AI) boom, Bitcoin tends to respond more quickly to liquidity changes. The good news, according to the report, is that Treasury balances are now near levels where rebuilding has generally stopped, suggesting that liquidity could soon improve and revive both Bitcoin and stocks.
Still, Citi sees new concerns emerging around AI trading. Investors are wondering whether massive spending on AI will produce sufficient returns, even as companies face rising hardware costs and supply constraints reminiscent of the late 1990s.
Hyperscalers such as Meta (META) and Alphabet (GOOGL) are also turning to debt markets to finance data center construction, issuing tens of billions of dollars in new bonds. The bank noted that this shift toward credit financing echoes the Internet era, although balance sheets remain much stronger today.
The report concludes that debt issuance reflects opportunity rather than stress, but cautions that the shift from cash to credit is rarely positive for bondholders.
Learn more: Citi Says Crypto Weakness Comes From Slowing ETF Flows and Declining Risk Appetite
