Gold, bond portfolios are “naked” without Bitcoin, claims Bloomberg strategist

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What protects an investment portfolio from potential stock market volatility? According to Mike McGlone of Bloomberg Intelligence, it is a merged exposure of Bitcoin (BTC), gold and government bonds.

The senior commodities strategist, who is heading BTC to $ 100,000, compared derivatives to the performance of the S&P 500 index in a new report depicting the three safe assets and found the trio to at least beat the benchmark Wall Street index since the beginning of 2020.

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Bitcoin gold bonds performance against the S&P 500 index. Source: Bloomberg Intelligence

The Bitcoin Gold Bonds Index took data from the Grayscale Bitcoin Trust (GBTC), SPDR Gold Shares (GLD) and iShares 20+ T-Bond ETF (TLT). The three funds allow investors to gain exposure to the market without having to hold / own the physical asset.

Bitcoin more profitable than gold and bonds

McGlone noted that Bitcoin had done quite a bit to make investors’ risk-off strategy successful, adding that without the flagship cryptocurrency, their portfolios “kept looking bare and bare” even as they continued to be exposed to gold and bonds .

The statement was based on the performance of bitcoin, gold and 10-year US Treasury bond yields given the prospect of rising quantitative easing and debt-to-GDP ratio. Since March 2020, Bitcoin is up nearly 1,190%, which is far better than the 25.93% spike from spot gold.

BTC / USD weekly price chart. Source: TradingView.com

Meanwhile, the US 10-year bond yield has risen from a record low of 0.33% to 1.326% over the same period.

However, despite a healthy spike, benchmark government bond yields are below US core inflation at 5.4%, suggesting that investors holding bonds as collateral against risky stocks are losing inflation.

US consumer price inflation rose to 5.4% in July. Source: Forex Live

As a result, lower yields have created opportunities for companies to borrow at meager interest rates to expand, which has given stocks a boost. In addition, investors in the secondary markets have started shifting their capital into non-profitable assets like Bitcoin and gold in anticipation of higher payouts.

Yield recovery ahead of us?

Former bond investor Bill Gross, who built Pimco into a $ 2 trillion wealth management firm, noted that bond yields can “only go up”.

The retired fund manager said 10-year US Treasury yields would climb to 2% over the next 12 months. Therefore, bond prices will fall due to their inverse correlation with yields, resulting in a loss of around 3% for investors who bought bonds in 2020 and 2021.

The Federal Reserve bought 60% of net US Treasury bond issues last year at its $ 120 billion monthly rate, but in August the US Federal Reserve announced that it would cease its bond purchases by the end of this year amid prospects for its 2% inflation target and economic growth slow it down.

“So how willing are the private markets to absorb this future 60 percent in mid-2022 and beyond,” asked Gross, adding that the US bond market would become “investment junk”.

“Medium to long-term pension funds are sure to be in that bin.”

Rising interest rates could threaten to draw capital from overvalued US stocks. At the same time, money could flow into the Bitcoin market as a risk-off trade. Julian Emanuel, chief equities and derivatives strategist at brokerage firm BTIG, shed light on the same thing in his interview with CNBC in February. Excerpts:

“This is the environment in which this catch-up trade will demonstrate its capabilities […] They come from such a low absolute interest rate that higher interest rates are likely to support alternatives like Bitcoin. “

Related: 3 Reasons Bitcoin ETF Approval Will Change BTC Price

For McGlone, the inflow of capital into Bitcoin and the rest of the cryptocurrency market, including Ethereum, would be about finding the next best investment opportunity. He said that digital assets could potentially represent the “higher beta potential,” adding:

“We see Ethereum on course towards $ 5,000 and $ 100,000 for Bitcoin.”

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every step of investing and trading involves risk, so you should do your own research when making a decision.