Weiss Ratings analysts predict the migration of trillion-dollar assets away from bonds and into Bitcoin and gold.
In a new post on the macro economy, Juan Villaverde and Bruce Ng say that bonds have lost their vibrancy in the financial markets.
Institutional investors have traditionally allocated 30% of their portfolio to bonds as a hedge against insane dips in the market, however, as the economic landscape shifts, Villaverde and Ng say that this strategy clearly has dating.
“… The hedge is no longer working. That’s because of decades of over-growth in world debt markets. That combined with printing huge money to stop them collapsing … has completely changed the financial landscape.
After inflation, bond yields gov’t near (or below) zero – and will remain for the foreseeable future. Even before inflation pulls in, the yield is already nearly zero or negative. As a result, the classic bond hedge is now broken. ”
Analysts point to the failure of bonds to prop up company assets during last spring’s Covid-19 dump. Although they had a small pump during the market crash, the gains were only a third of the dip the S&P 500 took.
As their utilities appear to decline, analysts expect at least a fraction of the funds traditionally allocated to bonds to move to Bitcoin and gold.
“As we write, about $ 30 trillion is sitting in government bonds. Suppose 10% of that amount finds its way into gold and Bitcoin. That works out to an $ 3 trillion exile. And if that’s evenly divided, we would end up with…
$ 1.5 trillion going into gold – that’s 15% of gold’s market cap (about $ 10 trillion now). A…
$ 1.5 trillion going into Bitcoin – which is 4.4 times its market cap (now about $ 338 billion). “
Other market analysts agree with the pair’s findings. Preston Pysh saying its 120,000 Twitter followers that those who believe the most important Bitcoin narrative of the moment is that it replaces gold have done it all wrong.
“People who say Bitcoin only replaces gold, total misses the big mark. This is for EVERY one about bonds. Good luck convincing the people who own 100 trillion bonds – which produce nothing – to hold on when their future face value and coupons are locked in a fixed fiat “value”. ”
DTAP Capital founder Dan Tapiero responded to Pysh in a heartfelt deal.
“Thanks Preston. Non-market people don’t understand that we have a general SHORTAGE of value stores available in the markets. IE not enough of them available to investors. GOLD not to lose its SOV premium any time soon, unlikely in my LIFETIME. “
While none of the analysts claim that Bitcoin will replace gold altogether, if gold and Bitcoin are equally receiving a share of the funds traditionally invested in bonds, Bitcoin is likely to gain from that move is much more than gold, first, because it has a much lower market cap and secondly, because Bitcoin has a stable supply, which can only shrink as demand rises.
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