Cathie Wood Says Crypto Bear Market May Be 'Close to the End'
- Ark Invest's Cathie Wood says the correlation of stocks and crypto is one way to recognize a bear market, and that it could even signal the beginning of the end.
- Wood also thinks the Federal Reserve may not raise rates by 0.50% in June.
- Crypto investors can take heart from Wood's optimism on crypto assets long term.
Ark Invest's Cathie Wood is optimistic about crypto and Bitcoin.
It's been a rough few months for crypto investors and many people want to know if the end is in sight. Lead crypto, Bitcoin (BTC) is down over 50% from its November all-time high, and other cryptos have lost even more value. As is often the case with cryptos, expert predictions vary wildly. Some are sure we'll see further collapse while others foresee rallies to new highs. Ark Invest's Cathie Wood is optimistic.
In a recent YouTube video, the prolific investor said, "You know you're in a bear market, and maybe close to the end when everything starts acting alike. And we're seeing the capitulation of one market after another." She pointed out, "Crypto -- a new asset class -- should not look like the Nasdaq, but it does."
Understanding Cathie Wood's optimism
Wood is the founder, CEO, and CIO of Ark Invest, an investment firm that focuses on disruptive technologies and innovation. Here are the two main reasons she is positive about an end to the crypto bear market:
- She thinks the correlation with stocks is an exception to the rule.
- She foresees an end to the hawkish moves from the Federal Reserve.
Let's look at each of these individually.
Correlation with stock market
According to Bloomberg, Bitcoin now mirrors U.S. stocks to an "unprecedented degree." But the Ark team believes this is an anomaly that will correct with time. "It is ridiculous that the genomic revolution and blockchain technology and crypto assets are all behaving exactly alike," said Wood. She explains that crypto assets began to mirror the Nasdaq at the beginning of COVID-19, but before that there was no correlation at all.
Why does the correlation with stocks matter? Prior to the pandemic, Bitcoin was often seen as a non-correlated asset that could help diversify a portfolio. If crypto now follows the stock market, this narrative no longer holds true. Earlier this year, the IMF also warned that this correlation raises the risk of contagion across markets.
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Potential the Fed will pull back its economic tightening measures
The other main reason Wood thinks crypto prices may start to improve is that she is hopeful the Fed will pull back on some of its tightening measures. The Fed's efforts to curb inflation without triggering a recession have played a significant role in declining crypto prices this year. Most recently, the Fed increased interest rates by 0.50% -- the largest hike since 2000.
Many economists believe another 0.50% rate hike is likely following the Fed's next meeting. But Wood is doubtful. The star stock picker said the Ark team thought the Fed would receive a lot of data in the coming month that would inject a measure of caution over further rate hikes. "We would be surprised to see another 50 basis point move," she said. "Maybe they'll do 25. We still think they'll be overdoing it and the markets won't be happy."
It's understandable to want to see an end to this crypto bear market as soon as possible. It can't be easy to watch the value of your crypto holdings drop, especially if you bought crypto for the first time last year. But in truth, we don't know how long it will last because many of the factors that are impacting crypto prices are out of our control.
Wood's hopes that the Fed won't take more drastic action to control inflation may be borne out. But if prices continue to increase it may not have a choice. Other factors, such as an escalation in the Russia-Ukraine conflict or increased crypto regulation, could also extend the crypto bear market.
In some ways, what's more important than when we might see a recovery is the fact that Wood is bullish on crypto in the long term. For those who are starting to lose faith in crypto altogether, understanding some of Ark Invest's reasons for optimism may be a way to avoid panic-selling crypto assets at a loss.
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