A billion dollar migration from stocks to bonds is expected to take place in late March as U.S. wealth managers realign their portfolios. And it could have direct or indirect effects on the Bitcoin market.
Nikolaos Panigirtzoglou, a cross-asset research analyst at JPMorgan & Chase, noted that pension funds, insurers, and similarly sized investment groups will sell their equity positions in order to gain exposure to the bond market. According to Panigirtzoglou, the move seems to be that investors are trying to revert to the classic 60/40 mix, a portfolio strategy that prompts asset managers to hold 60 percent of their capital in stocks and 40 percent in government bonds.
“It should happen as we speak,” Panigirtzoglou told the Financial Times. “The realignment could already help explain the bond market’s stronger performance so far this week, as transfers tend to be concentrated in the last two weeks of the quarter.”
US bond prices fell recently, led by the decline in the 10-year US Treasury bill, whose yields rose from 0.917 percent at the beginning of 2021 to around 1.617 percent on March 25. Meanwhile, the MSCI index for developed market stocks rose 2.63 percent over the same period.
Given the divergence between stocks and bonds, analysts expect a major realignment towards the end of the quarter as more capital flows into fixed income.
Will Bitcoin Suffer?
According to the Australian Future Fund and Singapore’s GIC Pte, two of the world’s largest sovereign wealth funds, it is now more difficult for investors to get returns from the bond markets as returns on these remain historically low.
Central banks in developed countries have created an artificial demand for national debt as part of their strategy to protect their economies from the consequences of the coronavirus pandemic.
As a result, the 60/40 strategy has lost its appeal. More investor money is now in riskier assets and even newbies financial assets like Bitcoin, which global financial experts once dismissed as too lazy or outright fraud.
With prospects for redistribution by the end of this quarter, Bitcoin continues to flash as an alternative to gold. The proven rarer features attract investors who need protection against faster inflation rates. Billionaire investors Ray Dalio, Paul Tudor Jones, and Stan Druckermiller are some of the top names who have taken positions in Bitcoin because other safe havens like bonds don’t offer higher returns.
Goldman Sachs said in its most recent report that 40 percent of its nearly 300 customers are exposed to bitcoin, showing that the asset’s price volatility is now the least of their concerns. Recently, Morgan Stanley has also started offering three Bitcoin funds to its wealthy clients, raising hopes that all of the money that would flow out of the stock market won’t just end up in bonds.
Even so, like stocks, Bitcoin remains highly valued. It could lower the cryptocurrency in the short term due to its technically overbought merits.
Cover Photo by Tech Daily on Unsplash