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Bitcoin ‘has been traded in lockstep’ with small-cap tech: Crypto strategist

Fundstrat Head of Digital Asset Strategy Sean Farrell joins Yahoo Finance Live’s Akiko Fujita to discuss bitcoin falling to its lowest level since September.

Video transcript

AKIKO FUJITA: Welcome back to Yahoo Finance Live. It has been an ugly week for Bitcoin. The world's largest cryptocurrency by market cap slumping yet again today, hitting its lowest level since September. We've seen it now just hovering right around that $41,000 handle. To talk more about that, let's bring in Fundstrat head of digital asset strategy Sean Farrell. He's joining us as part of our Crypto Corner segment presented by Tastyworks. Sean, good to talk to you today. Walk me through the moves here. We've got obviously a hawkish Fed that really kind of spilled over into the crypto market, but also a lot of people watching what's playing out in Kazakhstan, especially given the blackout there and potential impact with Bitcoin mining.

SEAN FARRELL: Yeah, both great points. Thanks for having me, first off. I guess just first, to touch upon the macro perspective, obviously, over at Fundstrat, we had a $100,000 price target heading into year end of 2021. Obviously, we did not get there. Had a very phenomenal year. If you bought the dips, you probably made out quite well. But yeah, the action we've been seeing over the past few days-- past several weeks, actually-- have been centered around the fears within the legacy markets around Fed tightening, the raising of interest rates. And we've kind of seen this sell-off of all unprofitable tech stocks. And Bitcoin has been traded in lockstep with those smaller cap tech stocks.

You know, as it pertains to Kazakhstan, you know, I think there's nothing actually driving price there. We did note that when the internet went out in Kazakhstan, it's tough to ascribe a hashrate to specific geographic areas in the short-term. But preliminary indications speak to about 8% to 12% of hashrate located in Kazakhstan, which is pretty large given the size of that nation. But I think the long-term concerns over that are pretty de minimis. I mean, we saw China go offline effectively last summer. And hashrate plummeted about 50%. And we actually crossed all-time high for computing power on the Bitcoin network last year. So that spoke to the resiliency of the Bitcoin network. And I'm not sure there's any concerns with regards to hashrate.

ZACK GUZMAN: Yeah, maybe correlated in terms of when we saw some of that volatility strike last year around China, of course, you know, you had every news headline around then kind of flagging that it was banning Bitcoin mining for-- I don't know-- I lost count of how many times those headlines have run.

But when we look at, I guess, you know, what 2022 could hold aside from Bitcoin, we've already seen some of these altcoins hold their own, even as Bitcoin's dropped 17% over the last month. I've been watching Phantom and Atom. And I guess those are two good examples because they're up 75% over the same time horizon. I mean, is that maybe one of the stories in terms of how mature the market's gotten in crypto, that you could have maybe some altcoins still enjoying maybe a good start to the year while Bitcoin and Ethereum aren't?

SEAN FARRELL: Zack, that's a really good point. And something we noted in our research last year is that there were enough capital inflows into the altcoin market to preserve outperformers within the altcoin ecosystem outside of just Bitcoin. Overall, given the latest selloff has actually seen the lion's share of altcoins follow Bitcoin, I think there are several factors at play here, one being the fact that a lot of these traders that made a windfall off of these altcoins last year now realize they're going to have to pay taxes in a couple of months. So I think there's a little less buying pressure from some of these altcoin traders right now. And what we're really going to see, you know, we're still formalizing our views on 2022 and plan to release those in a couple of weeks.

But I think what's going to happen is we're going to see a continued volatility on the short and medium-term could be a good opportunity for short-term traders. But in end of Q2, Q3, I think what ends up happening is the Fed will probably start to take their foot off the brake. And the tide, when the tide finally pulls out and things, volatility starts to come down, you know, we're going to see which altcoin assets rebound the quickest, which outperform. And these are going to be the ones that investors are really going to want to hop into and get in at a very good entry point and hopefully reap the reward into year end.

ZACK GUZMAN: Let's talk the other one, too. I mean, $100,000 on Bitcoin was one price call. There was another one that was matched by what we were hearing from you guys on Ethereum. Megan Kaspar even been talking about $8,000 to $10,000 for Ethereum. And that got pushed back as we saw some of the network upgrades on Ethereum get pushed back as well. And now you guys are kind of taking a technical analysis to what's going on with Ethereum. I was looking at your note. Pretty interesting to see, maybe watching for support around 24.72. Obviously a long way to go if some of this volatility continues. But I mean, how are you looking at maybe a more fundamental approach to Ethereum? When some of this chop goes away, are you expecting it to once again outperform Bitcoin by a pretty wide margin this year?

SEAN FARRELL: Yeah, I think so. I think a lot of investors right now are discounting the merge transpiring this year. I think there's obviously good reasons to be doubtful about that catalyst as it pertains to the Ethereum network. You know, obviously, what would be a monumental step to transition from proof of work to proof of stake, and that timeline has been pushed back countless times. But all indications point towards a firm probability that the transition from ETH 1.0 to 2.0 occurs sometime in that end of Q2 through Q3 timeframe, which, quite frankly, will be a enormous catalyst for Ethereum and certainly something that we're going to continue to keep an eye on and could be an opportunity for outperformance.

AKIKO FUJITA: Sean Farrell, Fundstrat head of digital asset strategy, always good to have you on the show. Appreciate the time today.