How can you protect your investment portfolio against stock market volatility? Mike McGlone from Bloomberg Intelligence says that a merged exposure to Bitcoin (BTC), Gold (and government bonds) is a good way to protect your investment portfolio against potential stock market volatility.
Senior commodity strategist who believes BTC will reach $100,000 has compared derivatives to the performance of S&P 500. The report, which he created, compared the three safe-haven assets with the performance of the S&P 500 index. He found that the trio outperformed the benchmark Wall Street index at the least since 2020.
Performance of Bitcoin-Gold Bonds against the S&P 500 Index Source: Bloomberg Intelligence
The Bitcoin-Gold-Bonds Index was created using data from the Grayscale Bitcoin Trust, SPDR Gold Shares and iShares 20+ Bond ETF (TLT). These funds allow investors to gain market exposure without having to own the asset.
Bitcoin is more profitable than bonds and gold
McGlone pointed out that Bitcoin was a powerful tool in helping investors to avoid risk. He also noted that portfolios that aren’t backed by the cryptocurrency “appear increasingly naked”, even though they still have exposure to bonds and gold.
This statement analyzed the Bitcoin, gold and 10-year US Treasury yield performance against the possibility of increasing quantitative easing levels and debt-to GDP levels. Bitcoin’s rise of nearly 1,190% since March 2020 is far more than spot gold’s 25.93% increase.
BTC/USD weekly chart. Source: TradingView.com
The U.S. 10-year bond rate has increased from 0.33%, which was a record low, to 1.326% during the same time.
Despite a healthy rise, benchmark government bonds’ returns have fallen below core U.S. inflation at 5.4%. This suggests that bond-holders who are looking for safety from risky equities may be losing inflation-adjusted capital.
In July, the US consumer price inflation climbed to 5.4%. Source: Forex Live
Because yields are lower, corporates can borrow at low rates to expand their businesses, giving equities an extra boost. Investors in secondary markets have also started to move their capital into non-yielding assets such as Bitcoin and gold, anticipating higher payouts.
Is Yield expected to rebound?
Bill Gross, a former bond investor, built Pimco into an asset management company worth $2 trillion. He noted that bond yields “nowhere to go except up.”
Retired fund manager stated that 10-year U.S. Treasury notes yields would rise to 2.2% in the next 12 months. Investors who have bought debts throughout 2020 and 2021 will see their bond prices fall because of the inverse correlation they have with yields. This will result in a loss around 3%.
The Federal Reserve bought 60% of US government debt issued over the past year through its $120 billion per month asset purchase program. This was to boost the US economy. In August, however, the U.S. central banking announced that it would reduce its bond-buying pace by the end this year due to the prospect of its 2% inflation target and economic growth.
Gross asked, “How willing will the private markets be to absorb these future 60% in mid-2022, and beyond?” He also said that the US bond market would become an “investment garbage.”
“Intermediate-to-long-term bond funds are in this trash receptacle for certain.”
Rising rates could make it difficult to attract capital from overvalued stocks in the United States. As a risk-off trade funds could also begin flowing into the Bitcoin market. In a February interview with CNBC, Julian Emanuel (chief equity and derivatives strategist at brokerage BTIG) discussed the subject. Here are some excerpts:
“This environment is where catch-up trading is going to prove its ability […] Your source of income is such a low absolute rate that higher rates are likely to be supportive of alternatives like Bitcoin.”
Related: Three reasons why approval of a Bitcoin ETF will make a big difference for the BTC price
McGlone stated that capital inflows into Bitcoin and other cryptocurrency markets, including Ethereum, are about finding the best investment opportunity. McGlone stated that digital assets could have the “higher beta potential,” and added:
We see Ethereum moving towards $5,000 and $100,000 for Bitcoin. You should do your research before making any investment or trading decision.