Thursday, September 29

Gold & Bond Portfolios Are ‘Naked’ Without Bitcoin, Claims Bloomberg Strategist


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

The senior commodities strategist, who sees BTC heading for $ 100,000, faced derivatives in a new report representing the three safe-haven assets against the performance of the S&P 500 index, finding that the trio have been outperforming the Wall Street benchmark at least since the beginning of 2020.

Performance of Bitcoin-Gold-Bonds against the S&P 500 Index. Source: Bloomberg Intelligence

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

Bitcoin more profitable than gold and bonds

McGlone noted that Bitcoin did a great job of making investors’ risk reduction strategy successful, adding that their portfolios “seem increasingly naked” without the flagship cryptocurrency, even if they remain exposed to gold and bonds.

The statement was based on the performance of Bitcoin, gold and the 10-year US Treasury yield against the prospect of increased quantitative easing and debt-to-GDP levels. Since March 2020, Bitcoin is up nearly 1,190%, which is much better than the 25.93% peak for spot gold.

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

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

Yet despite a healthy rally, benchmark government bond yields have turned out to be lower than US core inflation of 5.4%, suggesting that investors holding bonds as security against risky stocks they are suffering a loss adjusted for inflation.

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

As a result, the lower yields have created avenues for companies to borrow at meager rates for expansion, thus giving equities a boost. Additionally, investors in secondary markets have started moving their capital toward non-performing assets like Bitcoin and gold, anticipating higher payouts.

Performance rebound ahead?

Former bond investor Bill Gross, who turned Pimco into a $ 2 trillion asset management firm, indicated that bond yields “have nowhere to go but up.”

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

Federal Reserve bought 60% of the net issuance of US government debt. over the past year with its $ 120 billion a month asset purchase program to boost the US economy.However, in August, the US central bank announced that it would slow down bond buying for purposes this year, given the outlook for its 2% inflation rate target and economic growth.

“How willing, therefore, will private markets be to absorb this future 60 percent in mid-2022 and beyond,” Gross questioned, adding that the US bond market would become “investment garbage.” .

“The medium to long-term bond funds are sure to be in that dump.”

The rate hike could threaten to extract capital from overvalued US stocks. At the same time, as a risk-free trade, funds could also start flowing into the Bitcoin market. Julian Emanuel, the chief equity and derivatives strategist at brokerage BTIG, shed light on it. in his interview with CNBC in February. Excerpts:

“This is the environment in which that catch-up trade will show its capacity […] It comes from such a low absolute level of rates that higher rates are likely to support alternatives like Bitcoin. “

Related: 3 Reasons A Bitcoin ETF Approval Will Change The Game For 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 may represent “higher beta potential,” adding:

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

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and business move involves risk, you should do your own research when making a decision.