Fund Managers Slash US Equity Exposure by 40% Amid Economic Fears

Fund managers have significantly reduced their exposure to US equities, marking the largest monthly decline on record. Between February and March, investors slashed their holdings by 40 percentage points, according to a recent survey. This dramatic shift reflects growing concerns about the US economy's performance and increasing fears of a global economic downturn. The survey indicates that a net 69% of managers believe that the peak of "US exceptionalism" has been reached, signaling a major change in sentiment that could impact risk assets like Bitcoin, which has shown a strong positive correlation with the US equity market over the past 52 weeks.

The rise in cash allocations by investors further adds to the downside risks for Bitcoin and the broader crypto market. Cash levels increased to 4.1% in March from 2.5% in February, the lowest since 2010. This increase in cash holdings is often seen as a flight-to-safety signal, indicating that investors are becoming more risk-averse. Additionally, 55% of managers identified "Trade war triggers global recession" as the top tail risk, up from 39% in February. This concern, along with worries about inflation forcing Fed rate hikes, could dampen enthusiasm for risky assets like Bitcoin.

Despite these concerns, the survey's most crowded trades list still includes "Long crypto" at 9%, coinciding with the establishment of the Strategic Bitcoin Reserve in the US. This suggests that some investors remain optimistic about the potential for gains in the crypto market. Meanwhile, 68% of managers expect Fed rate cuts in 2025, up from 51% last month. Historically, lower interest rates have coincided with gains in Bitcoin and the broader crypto market, which some bettors believe is 100% certain to happen before May.

Bitcoin's price has declined by over 25% two months after reaching a record high of under $110,000, a drop many consider a bull market correction. Historically, Bitcoin experiences these types of corrections during long-term rallies, and there's no reason to believe this time is different. However, the cryptocurrency's next six months depend on how traditional markets, particularly stocks, perform. As of March 19, Bitcoin was holding above its 50-week exponential moving average (50-week EMA) at $77,250. A decisive break below this support level has signaled a bear market in the past, such as during the 2018 and 2022 correction cycles. If Bitcoin falls below the 50-week EMA, bears may target the 200-week EMA below $50,000, reflecting the downside sentiment discussed in the survey. Conversely, holding above the 50-week EMA has led to new sessional highs, as seen in 2024. If Bitcoin recovers from this support level, it could test the $100,000 psychological resistance level.