Eric Johnston, chief equity and micro strategy at Cantor Fitzgerald, joins CNBC's 'Squawk on the Street' to discuss the AI revolution, bitcoin sell-off, and equity markets.

Eric Johnston, Chief Equity and Macro Strategist at Canna Fitzgerald, discussed recent market dynamics, noting that concerns over AI-related investments and leverage have led to significant de-risking in both Bitcoin and equity markets. He indicated that signals such as a spike in the put-call ratio and VIX suggest a short-term market bottom, potentially setting the stage for a year-end rally.

Johnston highlighted that Bitcoin's volatility has decreased due to increased institutional ownership and regulatory developments, but it remains speculative compared to traditional assets. He observed that recent declines in Bitcoin have prompted some investors to move funds into gold, which has outperformed Bitcoin and is currently viewed as a safer asset amid inflation concerns and increased market liquidity.

Transition of bitcoin ownership caused people to rotate into gold

Joining us this morning is Eric Johnston, Chief Equity and Macro Strategist at Canna Fitzgerald. Eric, good to see you. Thanks for the help today. We have seen some discussion this morning about positive seasonality starts about now. Obviously, a taste of what dovish FedSpeak can do. Is that sort of your year-end thesis? It is. I mean, there's been a significant amount of concern around the AI build-out. Obviously, there's a lot of real questions that are being asked around the cost of the build-out, the cost per token and the revenue that can be generated from it. And with any sort of historic technological revolution, there's going to be periods of euphoria and there's going to be periods of fear because there's a lot that's not knowable since it's only happened once. And so we are currently in the period of extreme fear. We entered this situation with leverage in the system, both in Bitcoin and in the equity markets in different ways, a lot of crowding in some of the high-flying AI names. And so there's been a significant P&L hit and there's been a significant de-risking that has occurred. And it's now gotten into a place that we think we can now rally into year-end and the setup is much cleaner. You've had the put-call ratio spike, you've had the VIX curve go inverted, a VIX spike. You've had a number of signals to us that we are in the short-term bottoming process. Right. On Bitcoin specifically, the drawdown is about 36%, but past drawdowns, 78%, 55%, 84%, 78%, 41%. Why can't it be as bad as that? So I think the structural part of Bitcoin, the ownership of Bitcoin is very different from what it was then. There's been a institutionalization, right? There's a lot more institutions that own Bitcoin. Stablecoin has emerged. There's been legislation. So that has reduced, although we're not seeing it right now, it has reduced the volatility overall. And so I think that will stem some of the decline relative to what we've seen historically. But as you said, getting a de-risk in something that doesn't have earnings, doesn't have a P-E ratio is much more, there's definitely some speculation in there, can cause these types of dips. But I think the backdrop of easy money going forward, the Fed cutting, we see likely QE in 2026, all these things should be very favorable for Bitcoin. Right. The other statistic that's telling is that you would have been safer in T-bills, not just for the year, but going back to late 21, than you would have been in Bitcoin. And then the notion that it is the worst performing asset class of the year, where the best one is gold. I mean, that debate about which was safer, Bitcoin or gold is kind of getting answered, isn't it? It is. I think that ratio is going to be volatile. I think that part of the money that has flowed into gold has been a result of Bitcoin coming under pressure and some of a transition of ownership in Bitcoin forcing people to, or causing people to rotate into gold as their way to play inflation, increased liquidity in the system, and looking for a place to park excess money. So I think there is that some back and forth where when one benefits, it actually hurts the other.

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Dhaka

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Bangkok

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Washington

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Ukraine Invasion

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Kyiv

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Cambridge

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Beirut

Middle East Conflict

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San Francisco

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New York

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Johannesburg

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Jerusalem

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London

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