Bitcoin bulls could walk into a $1 billion liquidation trap as Bank of America warns multiples are about to compress

Bank of America’s newest market name reads much less like a typical bear forecast and extra like a structural warning about what occurs when markets cease paying premium multiples, even when earnings continue to grow.

The agency argues that the S&P 500 stays “statistically costly” on 18 of 20 valuation metrics, with 4 near-record highs, and expects P/E compression regardless of forecasting sturdy 14% earnings progress.

That setup of robust fundamentals assembly falling multiples creates a textbook risk-off downside for Bitcoin, which has more and more traded as a high-volatility fairness beta fairly than the diversifier narrative that dominated crypto’s early institutional pitch.

The mechanics matter as a result of BofA is not predicting an earnings collapse.

The agency’s year-end S&P 500 goal of 7,100 implies important a number of compression even with earnings on the high finish of consensus, pushed by 5 particular stress factors: earnings downgrades following worth drops, a surge in IPO provide increasing the fairness base, rising asset depth and leverage in company stability sheets, and what BofA calls “index danger from non-public hiccups.”

Software stands out as the stress epicenter, down roughly 20% year-to-date, with valuations close to decade lows amid AI considerations, a sector BofA explicitly flags as unlikely to snap again rapidly.

For Bitcoin, that issues as a result of crypto’s relationship with conventional equities has essentially shifted since 2020.

CME analysis paperwork correlations between Bitcoin and the Nasdaq reaching 0.35 to 0.6 during 2025 and early 2026, with crypto constantly amplifying equity moves on down days.

The “digital gold” diversification thesis has given method to a actuality the place Bitcoin capabilities as liquid beta in multi-asset portfolios, a high-volatility extension of US tech publicity that will get bought first when danger urge for food contracts.

Duration math meets cashflow-free property

When markets demand larger danger premiums or actual yields rise, long-duration property reprice decrease.

Bitcoin has no earnings stream, no dividends, and no terminal worth calculation. Yet, it behaves empirically like an asset with excessive length sensitivity.

The mechanism runs via low cost charges: if equities with precise money flows see multiples compress as a result of buyers pay much less for future progress, an asset with purely speculative money flows tends to get hit more durable.

The inform will present up in actual yields and fairness volatility rising collectively.

If the March FOMC alerts a slower tempo of charge cuts, significantly after the February CPI print on Mar. 11, Bitcoin’s implied “length” will get repriced alongside progress shares.

BlackRock explicitly framed 2026’s crypto trajectory as being pushed “largely” by liquidity conditions and the pace of cuts, positioning financial coverage as a first-order driver fairly than a secondary consideration.

Cross-asset deleveraging and the liquidity downside

Feb. 5 delivered a stress take a look at of how rapidly crypto can get caught in broader portfolio deleveraging.
Bitcoin liquidations exceeded $1 billion that day, coinciding with a tech selloff and deteriorating danger sentiment linked to institutional crypto ETF outflows.

The episode wasn’t an idiosyncratic crypto occasion, it was a reflection of Bitcoin’s place within the liquidity hierarchy.

When multi-asset portfolios scale back gross publicity throughout drawdowns, managers promote what’s liquid and what strikes. Bitcoin qualifies on each counts.

IMF analysis has documented increasing spillovers and interdependence between crypto and conventional monetary property, significantly throughout turbulence.

The structural setup means Bitcoin does not decouple throughout stress. It amplifies the preliminary risk-off impulse as a result of it is simpler to exit than locked-up non-public positions or illiquid options.

Reuters highlighted AI-driven borrowing sprees lifting corporate leverage and pressuring protection ratios, precisely the sort of macro suggestions loop that worsens risk-off cascades.

More leverage within the system means extra fragility, and Bitcoin sits on the intersection of most liquidity and most volatility when these cascades set off.

ETF mechanics flip sentiment into day by day tape alerts

The introduction of spot Bitcoin ETFs modified how risk-off interprets into worth motion.

What used to present up as generalized “sentiment” now seems mechanically as slower inflows or outright redemptions, turning institutional positioning into a day by day observable sign.

CoinShares reported $1.7 billion in weekly outflows as of early February, with Bitcoin alone accounting for $1.32 billion, a sharp reversal that flipped year-to-date flows into internet unfavourable territory.

The ETF construction creates a tight suggestions loop: fairness weak point triggers outflows, which stress Bitcoin costs, which may set off stop-losses and compelled promoting in leveraged positions, which in flip feed again into extra outflows.

That’s essentially totally different from the pre-ETF period, when institutional publicity was more durable to observe and slower to modify. Now the plumbing exists for equity-market stress to be transmitted to crypto markets inside the identical buying and selling session.

Failed rallies turn into simpler to diagnose. If Bitcoin bounces on lighter quantity however ETF flows stay unfavourable or impartial, the rally lacks institutional conviction.

Multi-day redemption patterns coinciding with range-bound or declining costs recommend the bid will not return till both fairness situations stabilize or macro catalysts shift.

AI narrative contagion and the beta-selling reflex

BofA’s particular call-out of software program as 2026’s worst-performing sector carries weight past conventional fairness evaluation.

Software’s roughly 20% year-to-date decline, with valuations at decade lows, displays rising skepticism about AI capex returns and the sustainability of winner-takes-all narratives.

If the market shifts from “AI transforms every part” to “AI capex could also be mispriced,” the intuition is not to rigorously separate winners from losers, however to promote broad beta exposures.

Bitcoin will get bucketed into that beta pile despite having no direct AI exposure.

The mechanism runs via narrative contagion: when high-growth, high-multiple sectors crack, danger managers scale back publicity to something perceived as speculative or momentum-driven.

Reports tied the software program selloff straight to Bitcoin and Ethereum weak point on Feb. 5, noting the software program index decline “accelerated the slide” in crypto markets.

Nvidia’s earnings name on Feb. 25 capabilities as the quick take a look at.

If steerage disappoints or raises questions about capex ROI sustainability, the software program weak point is probably going to deepen, and Bitcoin faces renewed promoting stress as managers exit what they understand as correlated danger.

If Nvidia calms considerations and stabilizes the AI tape, Bitcoin will get a reprieve, however provided that flows flip optimistic and macro situations cooperate.

Three situations, one catalyst window

The base case assumes orderly de-rating: combined earnings, acceptable CPI information, and a cautious Fed in March.

Equities grind sideways or decrease as valuations compress regularly. Bitcoin trades uneven with a draw back bias, rallies fade when ETF flows keep weak, and correlation with fairness risk-on/risk-off stays optimistic however manageable.

Volatility compresses, liquidations keep contained, and the market waits for the following macro catalyst.

The tail danger facilities on an AI air pocket: Nvidia’s steerage spooks the capex narrative, software program follow-through accelerates decrease, and fairness volatility spikes.

Bitcoin suffers a drawdown bigger than that of equities as a result of it is essentially the most liquid, high-beta asset out there. ETF outflows speed up, liquidations surge, credit score spreads widen, and compelled promoting dominates.

The inform can be unmistakable: sharp, correlated strikes throughout danger property with crypto main the decline.

The upside state of affairs requires macro aid: CPI cools, the Fed alerts cuts sooner, and Nvidia reassures markets on AI fundamentals. Equities bounce, and Bitcoin can outperform on reflexive risk-on flows plus enhancing ETF demand.

Correlations rise as inflows return and volatility falls. That final result relies on a number of situations aligning, which is feasible, however not the trail of least resistance, given the present positioning.

Scenario	NVDA final result (Feb 25)	CPI final result (Mar 11)	FOMC sign (Mar 17–18)	Equity regime (vol + multiples)	BTC impression (course + volatility)
Base: Orderly de-rating	Beats/inline; steerage regular, however not “blowout” (capex ROI questions linger)	In-line / barely cooler; no inflation re-acceleration	Cautious maintain; reinforces “data-dependent,” cuts not imminent	Valuation leak: gradual P/E compression, rotation, reasonably larger vol however contained	Choppy, draw back bias; rallies fade on weak danger urge for food; vol reasonable
Downside: AI air-pocket / risk-off cascade	Miss or shaky steerage; capex depth questioned; “AI commerce” de-rates laborious	Hot print / sticky providers; pushes out cuts	More hawkish maintain; slower/much less reducing path	Sharp a number of compression + vol spike; “promote beta” tape, tightening monetary situations	Down laborious, amplified vs equities (liquid beta); ETF outflows/liq. danger will increase; vol high
Upside: Macro aid + AI reassurance	Strong beat; steerage de-risks AI demand + capex ROI	Cooler-than-expected; disinflation narrative strengthens	Dovish maintain / alerts earlier cuts (or sooner tempo)	Risk-on rebound; vol falls; multiples stabilize or re-rate modestly	Up, can outperform on reflexive risk-on + enhancing flows; vol falls however stays elevated vs equities

The quick take a look at arrives inside weeks

Feb. 25 brings Nvidia’s earnings name. Mar. 11 delivers the February CPI print. March 17-18 frames the following FOMC determination.

Those three occasions decide whether or not BofA’s P/E compression thesis performs out rapidly or will get delayed by better-than-feared information.

For Bitcoin, the stakes are simple: if equities reprice from “priced for perfection” to “pay much less for danger,” crypto will get bought as liquid beta via deleveraging, tighter liquidity, and ETF mechanics earlier than any critical decoupling debate begins.

BofA maintains its 7,100 year-end S&P 500 goal and warns a fast rebound appears to be like unlikely.

If that view proves correct, Bitcoin faces a structural headwind that has little to do with crypto-specific fundamentals and every part to do with its place as a high-volatility fairness beta in an setting the place markets cease paying premium multiples.

The catalyst window is quick, the transmission channels are nicely established, and the ETF infrastructure ensures suggestions loops run sooner than in earlier cycles.

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