Bitcoin

60/40 Portfolios Will Pick Bitcoin over Government Bonds, Claims Veteran Investor

Yashu Gola | Jun 05, 2020 | 05:21

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• Bitcoin could attract higher demand from hedge funds as government bonds return poor yields.
• Portfolios with 60 percent exposure in the stock market and the rest 40 percent in the sovereign notes would diversify into Bitcoin/Gold, according to Dan Tapeiro, the founder of Dtap Capital.
• More than 90 percent of government bonds trade at yields below 1 percent.

Bitcoin and government bonds will battle each other to secure a position in the world’s leading global hedge funds, according to Dan Tapeiro, the founder of New York-based investment firm Dtap Capital Advisors.

Bending 60/40 Investment Rule

The veteran investor on Friday said funds with at least 40 percent exposure in the bonds market would need to find a replacement for it. That is because more than 90% of the government bonds are trading at yields below 1 percent. Risking poor returns, fund managers will reshuffle their allocations for safe-haven alternatives.

“Nothing more bullish for gold and bitcoin,” said Mr. Tapeiro. “[It is the] beginning of the end for [government] bonds as a functioning productive asset class. Traditional 60/40 portfolios will need to find a new defensive asset to replace a portion of the 40%.”

Percent of advanced economy government bonds outstanding by yield | Source: Bloomberg

The Bitcoin Bull Case

Fixed-income analysts noted earlier this year that significant sovereign bond yields have gone erratic on two differing accounts. First, investors fled high risky assets in March 2020 to seek safety in bonds that, in turn, sent their yields lower. On the other hand, global central banks slashed their interest rates and announced unprecedented easing.

That worked as a double-edged sword on the overall bond returns. Hedge fund managers hold it because they guarantee positive long-term outcomes despite the risk of inflation caused by money printing. At the same time, they tend to bend their 60/40 investment rule to seek short-term profits from riskier safe-havens.

That is where Bitcoin, an emerging asset, could benefit. Bloomberg, in its recent report, noted that new quantitative easing measures from global central banks could raise demand for “stores-of-value such as gold and bitcoin.” Mr. Tapeiro repeated the same, adding:

“Gold is the most liquid best defensive asset that exists.”

XAUUSD trending higher on increasing safe-haven bids | Source: TradingView.com, Coinbase

Both Gold and Bitcoin are trading higher than global equities on a year-to-date timeframe. But Bitcoin has largely surpassed the yellow metal in terms of yearly returns. As of Friday, the cryptocurrency was sitting atop 36 percent YTD profits. In comparison, spot gold was trading 12.69 higher.