Citi: "Bitcoin Weakness a Warning for Nasdaq... Rebound Possible"

Global investment bank Citi warned that Bitcoin's recent weakness could be a warning sign for the Nasdaq index. However, it said a year-end rebound is possible if liquidity conditions improve.

On the 7th (local time), CoinDesk reported that Citi said in its latest report, "Bitcoin's trading patterns have served as a leading indicator predicting movements in the Nasdaq-100 index," and "the current state of Bitcoin falling below its 55-day moving average suggests a weakening of risk-adjusted returns in the equity market."

Citi cited the U.S. Treasury's liquidity-absorbing measures and a decline in bank reserves as reasons for Bitcoin's weakness. Since mid-July, reserves within the banking system have declined by about $500 billion. The report said, "While the stock market has remained resilient thanks to the AI investment boom, Bitcoin responds more sensitively to liquidity changes," and "fortunately, the Treasury's cash balances are approaching the level at which rebuilding typically stops, so liquidity conditions are likely to improve soon."

Accordingly, Citi said the year-end 'Santa Rally' has not been completely ruled out, and that Bitcoin and the stock market could rebound together if liquidity recovers.

However, the report singled out increased borrowing in the AI industry and profitability concerns as new risks. It pointed out that large big-tech companies such as Meta and Alphabet are raising tens of billions of dollars in the bond market to expand data centers, which is reminiscent of the 1990s dot-com bubble.

Citi said, "Corporate balance sheets are currently much stronger than they were then, but a shift from cash-centered to credit-centered financing could be a negative signal for bond investors," adding, "Debt expansion in the AI sector is both an opportunity and a potential risk."