Citi Warns Bitcoin’s Slump Signals Caution for Year-End Equity Rally

Wall Street giant Citi (C) has cautioned that Bitcoin’s recent downturn could serve as a warning sign for traditional markets, even though the much-anticipated year-end equity rebound remains possible. Analysts led by Dirk Willer noted that Bitcoin’s performance often mirrors the Nasdaq 100’s trajectory—particularly when it trades above or below its 55-day moving average. Historically, when Bitcoin stays above this threshold, Nasdaq returns tend to improve significantly. However, with the leading cryptocurrency now trading below it, Citi suggests risk-adjusted returns for equities may be weakening.

The bank attributes Bitcoin’s recent weakness to tightening liquidity conditions. The U.S. Treasury’s effort to rebuild its cash reserves, coupled with a $500 billion decline in bank reserves since mid-July, has drained liquidity from financial markets, putting pressure on risk assets such as cryptocurrencies and stocks. Despite this, Citi analysts see a potential turnaround as Treasury balances approach levels where rebuilding typically halts, which could soon ease liquidity pressures and support a recovery in both Bitcoin and equities.

Citi also raised concerns about the sustainability of the artificial intelligence (AI) investment boom that has helped prop up equity markets in 2024. Investors are beginning to question whether massive AI-related spending will deliver meaningful returns amid soaring hardware costs and supply bottlenecks similar to those seen during the dot-com era.

Meanwhile, major tech companies like Meta (META) and Alphabet (GOOGL) are issuing tens of billions in new bonds to finance large-scale data-center expansions. Although Citi emphasizes that this trend signals opportunity rather than financial stress, the analysts caution that a market shift from cash to credit rarely benefits bondholders.

Overall, Citi’s report highlights how Bitcoin remains a leading indicator of liquidity-driven market sentiment—making its latest slump a signal for investors to stay vigilant heading into the year’s final stretch.