Warren Buffett's T-Bill Strategy: Surpassing the Federal Reserve

Economic

Summary:

Discover how Warren Buffett's Berkshire Hathaway now holds more U.S. Treasury bills than the Federal Reserve. Explore the implications of this strategic move, Buffett's investment philosophy, and what it signals about the current economic landscape.

Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has recently made headlines by amassing a larger holding of U.S. Treasury bills (T-bills) than the Federal Reserve. This strategic move has captured the attention of financial analysts and investors worldwide, raising questions about Buffett's outlook on the economy and his investment strategy.

Overview of Berkshire Hathaway's T-Bill Holdings

As of the end of the second quarter in 2024, Berkshire Hathaway held $234.6 billion in short-term investments in T-bills, surpassing the Federal Reserve's $195.3 billion in T-bills. This marks a significant increase from the $130 billion Berkshire held at the end of 2023, reflecting an 81% rise in its T-bill investments. The move is part of Buffett's broader strategy to build up cash reserves, which now include over $42 billion in cash and cash equivalents, encompassing T-bills maturing in three months or less.

Strategic Implications

Buffett's decision to increase T-bill holdings aligns with his historical approach during times of economic uncertainty. He has often preferred T-bills for their safety and liquidity, especially when attractive investment opportunities in the stock market are scarce. The current yields on T-bills, which are around 5%, offer a risk-free return that Buffett finds appealing compared to the elevated valuations in the equity markets. This strategy has led some to speculate that Buffett is adopting a bearish outlook on the economy, as he has been selling off significant portions of Berkshire's stock holdings, including a notable stake in Apple.

Financial Impact

The substantial investment in T-bills is expected to generate significant returns for Berkshire Hathaway. With an approximate yield of 5% on three-month T-bills, Berkshire's holdings could yield about $12 billion annually, or $3 billion quarterly. This risk-free income stream provides a stable financial foundation for the conglomerate, allowing it to maintain liquidity and flexibility in its investment decisions.

Comparison with the Federal Reserve

The Federal Reserve, traditionally one of the largest holders of Treasuries, has been reducing its asset holdings through quantitative tightening since June 2022. This process involves selling off Treasury securities to manage the money supply and interest rates, aiming to promote maximum employment and price stability. In contrast, Buffett's accumulation of T-bills suggests a cautious approach, prioritizing safety and liquidity over higher-risk investments.

Market Reactions and Future Outlook

Buffett's move has sparked discussions among investors and analysts about the potential implications for the broader market. Some view it as a signal of caution, indicating that Buffett anticipates economic challenges ahead. Others see it as a prudent strategy to capitalize on the current interest rate environment while waiting for more favorable investment opportunities.

At 93 years old, Buffett continues to demonstrate his ability to adapt to changing market conditions and make strategic decisions that align with his long-term investment philosophy. His focus on company fundamentals and risk management remains central to his approach, even as he navigates the complexities of the modern financial landscape.

Warren Buffett's decision to hold more T-bills than the Federal Reserve underscores his commitment to maintaining a strong cash position and his cautious stance on the current economic environment. As the global economy faces ongoing uncertainties, Buffett's strategy serves as a reminder of the importance of flexibility, liquidity, and prudent risk management in investment decision-making.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Thomas

Economic

For the past two years, Prime Minister Narendra Modi has pledged to transform India into a high-income, developed country by 2047. India is also on course to become the world's third largest economy in six years, according to several projections.

High-income economies have a per capita Gross National Income - total amount of money earned by a nation's people and businesses - of $13,846 (£10,870) or more, according to the World Bank.

With a per capita income of around $2,400 (£1,885), India is among the lower middle-income countries. For some years now, many economists have been warning that India's economy could be headed for a "middle income trap".

This happens when a country stops being able to achieve rapid growth easily and compete with advanced economies. Economist Ardo Hannson defines it as a situation when countries "seem to get stuck in a trap where your costs are escalating and you lose competitiveness".

A new World Bank report holds out similar fears. At the current growth rate, India will need 75 years to reach a quarter of America's per capita income, World Development Report 2024 says. It also says more than 100 countries – including India, China, Brazil and South Africa - face "serious obstacles" that could hinder their efforts to become high-income countries in the next few decades.

Researchers looked at the numbers from 108 middle-income countries responsible for 40% of the world's total economic output – and nearly two-thirds of global carbon emissions. They are home to three-quarters of the global population and nearly two-thirds of those in extreme poverty.

They say these countries face greater challenges in escaping the middle-income trap. These include rapidly ageing populations, rising protectionism in advanced economies and the urgent need for an accelerated energy transition.

"The battle for global economic prosperity will be largely won or lost in middle-income countries," says Indermit Gill, chief economist of the World Bank and one of the study's authors.

"But too many of these countries rely on outmoded strategies to become advanced economies. They depend just on investment for too long - or they switch prematurely to innovation."

For example, the researchers say, the pace at which businesses can grow is often slow in middle-income countries.

In India, Mexico, and Peru, firms that operate for 40 years typically double in size, while in the US, they grow seven-fold in the same period. This indicates that firms in middle-income countries struggle to grow significantly, but still survive for decades. Consequently, nearly 90% of firms in India, Peru, and Mexico have fewer than five employees, with only a small fraction having 10 or more, the report says.

Mr Gill and his fellow researchers advocate a new approach: these countries need to focus on more investment, infuse new technologies from around the world and grow innovation.

South Korea exemplifies this strategy, the report says.

In 1960, its per capita income was $1,200 - it rose to $33,000 by 2023.

Initially, South Korea boosted public and private investment. In the 1970s, it shifted to an industrial policy that encouraged domestic firms to adopt foreign technology and advanced production methods.

Companies like Samsung responded. Initially a noodle-maker, Samsung began producing TV sets for domestic and regional markets by licensing technologies from Japanese firms.

This success created a demand for skilled professionals. The government increased budgets and set targets for public universities to develop these skills. Today, Samsung is a global innovator and one of the world's largest smartphone manufacturers, the report says.

Countries like Poland and Chile followed similar paths, the report says. Poland boosted productivity by adopting Western European technologies. Chile encouraged technology transfer to drive local innovation, famously adapting Norwegian salmon farming techniques to become a top salmon exporter.

History provides enough clues about an impending middle-income trap. Researchers reveal that as countries grow wealthier, they often hit a "trap" at around 10% of US GDP per capita ($8,000 today), placing them in the middle-income range. That's roughly in the middle of what the bank classifies as "middle-income" countries.

Since 1990, only 34 middle-income countries have transitioned to high-income status, with over a third benefiting from integration into European Union (EU) or newfound oil reserves.

Economists Raghuram Rajan and Rohit Lamba separately estimate that even at a very respectable per capita income growth rate of 4%, India's per capita income will reach $10,000 only by 2060, which is lower than China's level today.

"We must do better. Over the next decade, we will see a possible population dividend, that is rise in the share of our population of working age, before we, like other countries, succumb to ageing," they write in their new book Breaking The Mould: Reimagining India's Economic Future.

"If we can generate good employment for all our youth, we will accelerate growth and have a shot at becoming comfortably upper middle class before our population starts ageing."

In other words, the economists wonder, "Can India become rich before it becomes old?"

Source: News AZ

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Warren Takunda

Commodity

Commodities including oil and copper joined in Monday's selloff in global stocks as growing fears of a U.S. recession stoked worries over demand, even as fundamental drivers provided support for some raw materials.

Crude oil eased in volatile trade that was supported by rising Middle East tensions, while copper lost gains earlier in the day from data showing growth in China's service activity, with both commodities down around 2%.

Commodities had already taken a hit in recent weeks, weighed down by the sluggish economy in top commodities buyer China, with crude oil down around 5% last week, copper hitting a four-month low on the London Metal Exchange, and corn near its weakest since 2020.

"Oil has done a lot already, particularly after Friday's sell-off. And obviously on the energy side we still have this geopolitical risk hanging over the market, waiting to see what action Iran takes if any," Warren Patterson, ING's head of commodities research, said.

"Metals may be getting relatively more support from policy with the consumption push."

Middle East tensions curbed losses in the oil market, with Israel and the U.S. bracing for a serious escalation in the region after Iran and its allies Hamas and Hezbollah pledged to retaliate against Israel for last week's killings of Hamas's leader and a top Hezbollah military commander.

Guy Wolf, global head of market analytics at Marex, said softer U.S. data could help markets by making it easier for central banks to cut rates, although a hard landing would ultimately hit demand.

"If you look at the Chinese data, domestically it is soft and exports are struck, so if the rest of the world weakens ... it is clearly going to be negative for base metals," he said.

Still, he said declines for metals should be limited by supply disruptions and demand from new energy sectors.

Growth in China's services activity accelerated in July, helped by new orders, although momentum in overseas demand eased to its slowest in 11 months, a private sector survey showed.

China should ramp up its fiscal stimulus to spur economic growth and set a firm inflation target to prevent the country falling into a "low inflation trap", a central bank policy adviser said in remarks seen on Friday.

In the agricultural market, Japanese rubber futures hit a more than one-week high on Monda, buoyed by adverse weather in top producer Thailand, before the market gave up gains.

Corn and soybeans languished near four-year lows on expectations of bumper U.S. output. Wheat fell 1.7% amid plentiful global supplies.

Source: Reuters

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Cohen

Central Bank

Economic

Global stock markets tumbled on Monday at the start of another volatile week, as a so-far reasonably robust earnings season failed to offset fears of a U.S. recession and worries that stocks have become too pricey.

Here is a look at what's big in markets in the coming week, from Lewis Krauskopf in New York, Rae Wee in Singapore, Kevin Buckland in Tokyo and Maggie Fick and Amanda Cooper in London.

1/A Tipping Point

Around half of the world's developed-market central banks have started cutting interest rates - the Bank of England did so on Aug. 1 and the Federal Reserve is teeing up a cut for September.

Global stocks, crypto and bonds have been rallying this year in giddy anticipation of central banks finally lowering interest rates, while inflation and economic growth gently tail off from their post-COVID highs.

So far, so good. Recession appears unlikely. Earnings have been decent, with more beats than misses. The problem is when assets are "priced to perfection", it does not take much for disappointment to set in. And thin summer markets often mean more volatility.

Weaker readings of U.S. business activity and employment have prompted investors to assess whether rate cuts are a reflection of an economy that is weaker than they bargained for and it is time to take some money off the table. Take Five: Global Rate Cuts? We're Halfway There_1

Take Five: Global Rate Cuts? We're Halfway There_1

2/More Earnings to Mull

A U.S. corporate earnings season that has come in better than expected so far gets a fresh test in the coming week, with a number of high-profile reports due.

With more than half of S&P 500 companies having already reported, second-quarter earnings are on pace to have climbed 12.6% from a year earlier, LSEG IBES data showed on July 31. That is better than the 10.6% increase expected for the period on July 1.

So far, 78.4% of companies have topped analyst estimates for earnings, nearly the same beat rate as in the prior four quarters.

While most of the megacap companies will have reported already, other important results are expected in the days ahead. Those include industrial bellwether Caterpillar, media and entertainment giant Walt Disney, weight-loss drugmaker Eli Lilly and Super Micro Computer, which is at the centre of the market's artificial intelligence excitement. Take Five: Global Rate Cuts? We're Halfway There_2

Take Five: Global Rate Cuts? We're Halfway There_2

3/Rocky Path

A slew of economic releases from China will reveal how its shaky recovery is taking shape in the second half of the year and chances are, the picture still is not going to be particularly rosy.

The week begins with a private-sector survey on services activity, followed by trade data on Wednesday and a reading on consumer prices to round off the week.

Recent Chinese data continues to point to a gloomy outlook, and a growing sense of urgency in Beijing's efforts to shore up the economy has since been reflected in its surprise rate cuts, with investors betting on more to come.

Officials will be keeping a close eye on Friday's inflation report for clues on how much more needs to be done to bolster anaemic domestic demand, especially after policymakers signalled their support for more consumer-directed stimulus measures. Take Five: Global Rate Cuts? We're Halfway There_3

Take Five: Global Rate Cuts? We're Halfway There_3

4/Weighty Results

Novo Nordisk, Europe's most valuable company, releases its second-quarter results on Wednesday.

The company's fortunes - and shareholder returns - have soared with the blazing success of its weight-loss drug Wegovy. Its market value has risen by $380 billion since it launched the anti-obesity injection three years ago, to $572 billion.

The top questions for investors and analysts are: manufacturing capacity and supply.

Novo and Eli Lilly and Co, the only other company, for now, with a rival obesity drug on the market, face the same challenge: increasing production of these medicines, which are delivered weekly in a self-injection pen.

Lilly, which reports on Thursday, has quickly gained ground on Novo since launching Zepbound in December.

Novo accounts for almost 4% of Europe's STOXX 600, so its results carry more weight for the broader index than ever. Take Five: Global Rate Cuts? We're Halfway There_4

Take Five: Global Rate Cuts? We're Halfway There_4

5/CPI Flips RBA Script

From an outside chance of a rate hike at the Reserve Bank of Australia's Aug. 5-6 policy meeting, traders switched to pricing in the risk of a rate cut by year-end instead - all because of one soft inflation reading.

The Aussie dollar skidded to a three-month low and stocks surged to a record high, after core inflation unexpectedly slowed to a two-year low.

This will be very welcome news at the central bank, which would have been very reluctant to raise rates already at a 12-year high amid flatlining economic growth, moribund consumer spending and a weakening labour market.

Traders now put the odds of a rate cut at a coin toss for November, much sooner than the RBA's assumed timing of possible easing - around the middle of next year should inflation continue to slow as desired. Take Five: Global Rate Cuts? We're Halfway There_5

Take Five: Global Rate Cuts? We're Halfway There_5

Source: Reuters

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Warren Takunda

Economic

Forex

The US dollar fell against its major trading partners early Monday, except for an improvement against the pound, to start a lighter week of data releases and a return to Federal Reserve speakers after last week's Federal Open Market Committee meeting.

The July employment report was softer than expected when it was released Friday morning, weighing on the dollar and equities markets, so comments from Fed officials regarding its impact on future FOMC decisions will be watch closely.

Manufacturing data for July from S&P Global are set to be released at 9:45 am ET, followed by the Institute for Supply Management's manufacturing report for the same month at 10:00 am ET. San Franciso Fed President Mary Daly, a voter on the FOMC this year, is scheduled to speak at 5:00 PM ET.

Tuesday's highlights include weekly Redbook same store sales and consumer sentiment data. Weekly mortgage applications and energy stocks data and consumer credit data for June are due for release Wednesday.

Highlights Thursday include weekly jobless claims and natural gas data and wholesale inventories data for June. The St. Louis Fed's initial estimate of Q3 gross domestic product is due to be released Friday.

A quick summary of foreign exchange activity heading into Monday:

USDEUR rose to 1.0950 from 1.0913 at the Friday US close and 1.0823 at the same time Friday morning. The Eurozone services purchasing managers' index declined modestly in July but continued to indicate expansion, while June producer prices rebounded after a decline in May, data released earlier Monday showed. The next European Central Bank meeting is scheduled for Sept. 12.

GBPUSD fell to 1.2755 from 1.2809 at the Friday US close but was above a level of 1.2736 at the same time Friday morning. The UK's services PMI rose further above the breakeven point in July, data released overnight showed. The next Bank of England meeting is scheduled for Sept. 19.

USDJPY fell to 142.3001 from 146.5951 at the Friday US close and 148.8672 at the same time Friday morning. Japan's services PMI rose back above the breakeven point in July, indicating a return to expansion, data released overnight showed. The next Bank of Japan meeting is scheduled for Sept. 19-20.

USDCAD fell to 1.3862 from 1.3867 at the Friday US close and 1.3882 at the same time Friday morning. Monday is a holiday in Canada, so there are no data releases on the schedule. The next Bank of Canada meeting is scheduled for Sept. 4.

Source: MTNewswires

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FastBull Featured

Data Interpretation

The non-farm payroll report released by the U.S. Bureau of Labor Statistics last Friday showed that non-farm payrolls grew by just 114,000 in July, significantly lower than the market expectation of 175,000 and the previous reading of 179,000. The average monthly increase over the past three months was 167,000. Additionally, the non-farm payrolls for May and June were revised downward by 2,000 and 29,000, respectively, to 216,000 and 179,000.

The report reveals a broad-based cooling in the non-farm payrolls and poor structural quality:

Government payrolls rose by 17,000 in July, down from a 43,000 increase in June, with state and local government jobs showing a marked decline. Private sector jobs increased by 97,000, down from the previous month's 136,000.

Private services jobs rose by just 72,000, below a 125,000 increase in June, with information, financial activities, and temporary services being the main drags. Education and healthcare added 57,000 jobs, contributing approximately 50% of the total job growth.

Goods-producing sectors added 25,000 jobs in July, higher than June's 11,000. Construction employment continued to rise, with 25,000 new jobs created, higher than the previous month's 20,000. Manufacturing jobs rose by 1,000. U.S. July Non-Farm Payrolls Analysis: Job Growth Slows, Rising Unemployment Triggers Recession Indicator_1

U.S. July Non-Farm Payrolls Analysis: Job Growth Slows, Rising Unemployment Triggers Recession Indicator_1

U.S. July Non-Farm Payrolls Analysis: Job Growth Slows, Rising Unemployment Triggers Recession Indicator_2

Moreover, accommodation and food services added 25,600 jobs, with 19,500 in food services and 6,100 in accommodation sector. This suggests a small employment rebound in the leisure and hospitality sector as the summer travel season began.

Despite resilient spending on accommodation and food services in the second quarter, which grew by 6% from a year ago, above the pre-pandemic trend level of 5.8%, the latest JOLTS report shows continued weakening in leisure and hospitality hiring. June job vacancies fell from 1.068 million to 900,000, indicating potential low-level fluctuations in subsequent job growth.

The rebound in goods-producing job growth was mainly driven by the construction sector, reflecting growing non-residential interior design demand. Construction employment, often a leading indicator of economic changes, rose by 25,000 in July, slightly above the average monthly gain of about 20,000 jobs over five years before the pandemic. This could signal a recovery in the housing starts, which have been subdued for months.

Manufacturing jobs grew by 1,000, compared with a previous decline of 9,000, though the ISM Manufacturing PMI dropped from 49.3 to 43.4, indicating ongoing weakness in manufacturing.

Private sector job gains decreased significantly to 97,000 in July from 136,000 in the previous month. Healthcare was the main contributor to the job gains and construction employment continued to rise. However, information, financial activities, and temporary services saw notable declines of 20,000, 4,000, and 9,000 jobs, respectively. U.S. July Non-Farm Payrolls Analysis: Job Growth Slows, Rising Unemployment Triggers Recession Indicator_3

U.S. July Non-Farm Payrolls Analysis: Job Growth Slows, Rising Unemployment Triggers Recession Indicator_3

Notably, government employment increase saw a significant drop to 17,000, down from 43,000, with state and local government jobs increasing by only 16,000, down largely from a rise of 41,000 in June. This decline is one of the main reasons for the overall drop in July non-farm payrolls. The slowdown in government employment growth could be anticipated from the JOLTS data released last Tuesday, which showed a large increase in state and local government job vacancies (+118,000), especially in education (+24,000 job vacancies). Meanwhile, both hiring and quitting fell, reflecting a decline in employment.

Furthermore, according to forecasts from the National Association of State Budget Officers, state and local government spending in fiscal year 2025 is expected to drop significantly from the 2024 level. Additionally, state and local governments' Education Stabilization Funds are nearing depletion (with states having spent 80%-95% of the awarded funds), suggesting future downward pressure on state and local government education job gains.

Given that state and local government education has been a major influence on government employment performance, reduced education spending could lead to a reduction in state and local government education jobs, impacting overall job growth. The cooling trend in state and local government job creation is expected to be somewhat sustainable in the future.

The unemployment rate rose by 0.2 percentage points to 4.3% in July from the previous month, the highest level since October 2021, exceeding the expected 4.1%. The increase in unemployment nearly triggers the "Sahm Rule" recession indicator. According to the Sahm Rule, if the unemployment rate (based on a three-month moving average) rises by 0.5 percentage points from its low of the previous year, a recession has begun, and this indicator has a 100% accuracy rate since 1970.

However, the data suggests that the recent rise in the unemployment rate may primarily be attributed to an increase in the labor force population coupled with a decline in hiring demand.

Since the onset of the pandemic, a significant influx of immigrants into the U.S. has led to an increase of approximately 4.1 million in the overall labor force. Moreover, the growing acceptance of remote work has resulted in an increase of 1.85 million in the number of working-age individuals with disabilities compared to pre-pandemic levels, a segment of the population that generally faces more substantial employment challenges. The confluence of these factors, along with a decrease in recruitment needs, is likely contributing to the rapid increase in the unemployment rate. Supporting this observation are the recent declines in job openings reported by JOLTS for the private sector, as well as rises in both initial and continuing jobless claims.

Sahm herself expects that the U.S. economy is unlikely to enter a recession, as it did not follow the conventional patterns of economic downturns and recoveries during the pandemic. Additionally, the increase in immigration post-pandemic could distort the effectiveness of labor market indicators.

From the perspective of unemployment distribution, the number of temporary layoffs surged by 249,000 to a total of 1.062 million following Hurricane Beryl, marking the highest point since September 2021, while the average monthly level over the past year has been slightly over 800,000. If the subsequent temporary unemployed individuals return to work, the unemployment rate may improve. Analysts project the unemployment rate to decrease to approximately 4.1% in August.

Despite the disappointing overall employment data in July, the employment rate among prime-age workers remains robust. In terms of the labor force participation rate, as of July, the U.S. labor force participation rate stood at 62.7%, still 0.6 percentage points below that of February 2020. Notably, the participation rate for the prime working-age population is 84.0%, which is 1.0 percentage point higher than in February 2020.

Last Friday, following the release of the non-farm payrolls, U.S. stocks, the U.S. Dollar Index (USDX), and Treasury yields experienced significant declines. Gold initially rose before subsequently falling, as expectations for interest rate cuts intensified, exacerbating concerns about an economic downturn. The S&P 500 dropped by 1.8%, with the yield on the 10-year Treasury securities decreasing by 18.2 basis points to 3.80%. The USDX closed at 103.2, a decline of 1.1%. This situation not only reflects investor apprehension regarding an economic slowdown but also indicates a shift in market expectations concerning Fed policy. Until further data confirms that the U.S. economy is not heading towards recession, it is highly probable that the stock market will continue to trade on recession fears.

The closely monitored inflation gauge - average monthly earnings only increased by 0.2%, falling short of the expected 0.3%, while the year-over-year increase in average hourly wages dropped to 3.6%, marking the smallest annual growth since May 2021, compared to a rise of 3.8% in June. The primary reason for this is the ongoing closure of the employment supply-demand gap, which is leading to a gradual easing in wage growth. Since 2024, the average monthly labor supply-demand gap has been 1.88 million, significantly shrinking from an average of 3.35 million in 2023. Currently, there are 1.2 job openings for every unemployed person, effectively equal to the pre-pandemic level of 1.19, indicating a more balanced labor market supply and demand situation.

Overall, the U.S. labor market continues to weaken, with a persistent slowdown in wage growth and a rising unemployment rate. Additionally, the economic indicators reflecting the U.S. economy are also witnessing a continual decline; in July, the manufacturing PMI fell to 46.8, while the services PMI remained below 50 in June. The University of Michigan's Consumer Sentiment Index dropped to 66.4 in July, and the ADP employment figures recorded the lowest number since February. These data points have intensified concerns in the market regarding the future of the U.S. economy, significantly increasing expectations for interest rate cuts.

After the release of the July non-farm payrolls, U.S. President Biden issued a statement acknowledging the slowdown in job growth, framing it within the context of the economy returning to normalcy. He noted that the non-farm payrolls indicate a deceleration in employment growth amid a significant decrease in inflation.

The non-farm payrolls lay the groundwork for a potential interest rate cut by the Fed in September. The market not only expects that a rate cut in September is a certainty but has also increased its bets on substantial reductions in rates. According to the CME FedWatch Tool, the market expects a 30.5% probability that the Fed will cut rates by 25 basis points in September, with a 69.5% probability of a 50 basis point cut. Furthermore, there is an expectation of three rate cuts within the year, totaling a reduction of 125 basis points.

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Warren Takunda

Cryptocurrency

Bitcoin starts the first full week of August with a shock as global stock markets see a record-breaking correction.

BTC price downside is taking everyone by surprise as BTC/USD hits its lowest levels since February.

Down nearly $18,000 in days, Bitcoin is joining an alarming comedown across risk assets worldwide as talk of recession takes hold in the United States.

The speed of the turnaround in crypto market sentiment is a sight to behold — just a week ago, Bitcoin was trading near $70,000, and analysis saw new all-time highs coming next.

Now 25% lower, BTC price action is busy liquidating long positions to the tune of hundreds of millions of dollars.

Altcoins are faring worse, with largest altcoin Ether down nearly 40% in the same period. Even the Japanese stock market has delivered harsher losses than BTC/USD, a nod to the global nature of the current market reset. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_1

Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_1

Nikkei 225 vs. BTC/USD 1-day chart. Source: TradingView

What will happen in the coming days is anyone’s guess, but for crypto holders, the main concern is where the bottom might now lie.

Bitcoin has given up — once again — multiple bull market support levels and plunged a significant section of its hodler base into unrealized losses.

Some see only central bank policy intervention saving the day, while others argue that, despite its brutal nature, a stock correction was only a matter of time.

Cointelegraph takes a look at the state of play on Bitcoin and beyond as a new Wall Street trading week begins and a grim sense of uncertainty pervades crypto markets.

Bitcoin price sags under $50K in brutal crypto crash

To say that Bitcoin bulls have lost big is an understatement in the current climate.

Not only is BTC/USD trading at levels last seen 25 weeks ago, crypto liquidations in the past 24 hours have passed $1 billion, as confirmed by monitoring resource CoinGlass. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_2

Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_2

Crypto liquidations (screenshot). Source: CoinGlass

In total, the combined crypto market cap has lost more than $500 billion over the last three days, setting a yearly record.

Data from Cointelegraph Markets Pro and TradingView confirms lows of $49,647 on Bitstamp — a number last seen on Feb. 14. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_3

Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_3

BTC/USD 1-day chart. Source: TradingView

“Bitcoin & Crypto are in capitulation as everything drops 10-18% overnight,” Michaël van de Poppe, founder and CEO of trading firm MNTrading, summarized in part of a reaction on X.

Like many, Van de Poppe was taken by surprise as the pace of market losses accelerated in step with the first Asia trading session of the week for stocks.

“Uncomfy in spot,” popular trader Jelle admitted on the day, characterizing the sense of unease across the trading community.

Fellow trader Credible Crypto hoped that $50,000 would at least remain intact as support.

“BTC lows taken, weekly demand tapped, front-running the higher TF zone at 49k (for now), meanwhile $ETH has dived right into it's own HTF zone and nearly pushed through it,” part of his latest X coverage explains.

Credible Crypto added that more proof was needed before establishing likely lines in the sand for the markets, referencing a July chart showing likely areas of mass demand.

“Ideally, BTC never makes it to that HTF demand below 50k and this is the worst of the drop,” he continued.

“I'm inclined to believe this is the case, but we have zero confirmation yet, so will be watching PA to get further signs of a full on reversal.”

BTC/USD 12-hour chart. Source: Credible Crypto/X

Veteran trader Peter Brandt nonetheless warned that further downside could easily result from current levels. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_5

Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_5

Source: Peter Brandt

“Crazy Sunday to end a crazy prior week to start an even crazier week to come,” he concluded about current events.

Buffett's Apple sale adds poignancy to stocks sell-off

While the crypto comedown is distressing for traders due to its voracity, it appears little more than a reaction to bigger problems on global stock markets.

Just like the end of last week, the start of the next is being led by major losses in Japan, where the Nikkei has seen a record-breaking dive.

At the time of writing, this is set to be the largest two-day drop in the history of the Nikkei 225.

Commentators note that this has beaten “Black Monday” from the 1987 global stocks crash, and that contagion is spreading.

“Now, South Korea has halted ALL sell orders as markets crash,” part of ongoing X commentary from trading resource The Kobeissi Letter states.

“Panic selling has arrived.”

Nikkei 225 vs. BTC/USD 1-month chart. Source: TradingView

The Nikkei has fallen so far, in fact, that on monthly timeframes its losses are outpacing Bitcoin’s.

In the US, signs of what may become a knee-jerk reaction to Asia are already emerging. Nvidia stock, previously the classic outperformer, is now down 30% versus its June all-time high, erasing a giant $1.2 trillion in market cap.

“To put this in perspective, only 7 public companies in the world have a market cap of $1.2 trillion or more,” Kobeissi commented.

“Nvidia has lost more market cap then the total market cap of Tesla, $TSLA, and Walmart, $WMT, combined. Truly historic.”

Stocks are also focusing attention on what could turn out to be a shrewd move by Warren Buffett’s Berkshire Hathaway, which sold nearly 50% of its stake in Apple, per its Q2 earnings report.

APPL traded at $216 per share at the end of Q2.

Fed calls emergency meeting with rates still sky high

The latest panic is turning up the heat for the US Federal Reserve, which just last week opted to maintain high interest rates while only gently suggesting that it could lower them at its next meeting in September.

Markets had already priced in a 100% chance that a rate cut would occur, with consensus favoring a minimal 0.25% decrease.

The latest data from CME Group’s FedWatch Tool, however, shows that those expectations are being upended.

From just 22% odds on Aug. 3, the likelihood of a larger 0.5% cut now stands at 96.5%. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_7

Fed target rate probabilities. Source: CME Group

The numbers reflect the likely increasing pressure on Fed officials to protect the economy from the fallout from several years of hawkish policy.

Against the background of recession fears, criticism of the Fed, which announced an emergency meeting for Aug. 5, was easily seen.

“Just as the Fed was too slow to tighten in 2021, it looks like they were too slow to ease in 2024,” Charles Edwards, founder of quantitative Bitcoin and digital asset fund Capriole Investments, wrote in part of X commentary on rising unemployment at the weekend.

Anthony Pompliano, founder of investment firm Professional Capital Management, speculated that the Fed might take emergency measures.

“If there is enough pain in asset prices, we could get an emergency rate cut to calm the market. Very unlikely but the Fed has a lot of options with rates at over 5%,” he argued.

Bitcoin speculator holdings take a beating

Unsurprisingly, BTC/USD has abandoned many a bull market support level by crashing below $50,000.

For recent buyers, however, the pain is especially poignant — Bitcoin’s short-term holders now face serious unrealized losses.

The latest data from onchain analytics firm Glassnode spells out the extent of the problem for speculators, as captured by the short-term holder market value to realized value (STH-MVRV) metric.

STH-MVRV measures the aggregate cost basis of unspent transaction outputs (UTXOs) up to 155 days ago to the current price.

At 0.88 as of Aug. 4, the metric confirms net losses for the STH cohort, and the number has likely dipped far lower as losses mount. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_8

Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_8

Bitcoin STH-MVRV chart. Source: Glassnode

In a recent edition of its weekly newsletter, “The Week Onchain,” Glassnode linked high levels of unrealized losses to investors’ risk of panic selling.

“This cohort saw over 90% of their supply fall into a loss in late July, putting them into a financially stressful position,” it wrote.

Glassnode subsequently added that Bitcoin’s “diamond hands,” the long-term holder cohort, remained committed to not selling as of late July.

“Long-term investors currently hold 45% of the network wealth, which is relatively elevated compared to near macro cycle topping events. This underscores that LTHs hold the coins in HODL mode and are arguably patiently waiting for higher prices to divest into market strength,” it suggested. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_9

Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_9

Bitcoin long-term holder share of market cap. Source: Glassnode

No talk of buying

Not a surprise, but telling nonetheless — crypto market sentiment is back on the cusp of “extreme fear.”

The latest readings from the Crypto Fear & Greed Index reveal a collapse in faith among investors.

On July 29, “extreme greed” was around the corner as markets headed for a retest of all-time highs, but just days later, such a scenario could not be further from reality.

Fear & Greed measured 26/100 as of Aug. 5, and as a lagging indicator, likely has further to fall. Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_10

Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_10

Crypto Fear & Greed Index (screenshot). Source: Alternative.me

Analyzing the social media landscape, research firm Santiment even suggested that there might not be enough panic to produce confidence in a long-term market bottom and justify a mass buying spree.

“Is this THE dip?” it queried on X.

“Discussions about buying have spiked, but not as much as you may think on such a dramatic drop. Expect for the bigger reaction to come as the US wakes up for their Monday morning shock. Emotional selloffs will only accelerate the timing of crypto's rebound.” Was Warren Buffett Right? 5 Things to Know in Bitcoin This Week_11