Chris Wood cuts exposure to gold, a first in years; invests in Bitcoin

The spectacular surge in Bitcoin over the past few months has lured traders and investors to the cryptocurrency. The spurt over the last few weeks has now prompted Christopher Wood, global head of equity strategy at Jefferies to trim exposure in gold in favour of bitcoin in his long-only global portfolio for US dollar-denominated pension funds, which was established at the end of the third quarter of calendar year 2002 (Q3-02). He plans to increase exposure to the crypto in this portfolio on any correction.

"The 50 per cent weight in physical gold bullion in the portfolio will be reduced for the first time in several years by five percentage points with the money invested in Bitcoin. If there is a big drawdown in bitcoin from the current level, after the historic breakout above the $20,000 level, the intention will be to add to this position," Wood wrote in his weekly note to investors, GREED & fear.

From its March 2020 low, Bitcoin has gained a massive 474 per cent and has surged 214 per cent year-to-date (YTD), data show. The crypto breached the$23,000 mark for the first time on Thursday, a day after it hit the $20,000 milestone for the first time ever.

The unit was invented in 2008 and launched in 2009. Over the years, this crypto currency has become investible option for institutions and retail investors.

Back home, an investment in cryptocurrency is neither explicitly legalized nor prohibited. In 2018, the Reserve Bank of India (RBI) had banned crypto payments, which was overturned by the Supreme Court in March. On its part, the central bank later clarified that it had not banned cryptocurrencies such as Bitcoin in India, but only ring-fenced regulated entities like banks from risks associated with trading of such virtual instruments.

"On fundamental level, Bitcoin’s growth is largely attributed to how it is designed and in May 2020, we witnessed third halving, a supply shock event, where the number of daily mined Bitcoin gets cut in half. In the previous two halvings, Bitcoin and overall crypto market cap has risen exponentially, and we are witnessing a start of similar bull trend," explains Sumit Gupta, co-founder and chief executive officer at CoinDCX.

Microstrategy – a Nasdaq-listed business intelligence software company – has invested an equivalent of $425 million amounting to almost 100 per cent of its own treasury funds in bitcoin, which it will hold in its balance sheet. Many payment rails like PayPal, Square are also planning to integrate cryptocurrencies to their service portfolio due to rising demand for cryptocurrencies from retail investors, reports suggest. Recently, Massmutual, an insurance giant, has also made its way into Bitcoin investments.

Despite the investment in bitcoin by trimming exposure to gold, Wood still continues to remain bullish on the yellow metal and expects the prices to move up in case the central banks continue to maintain accommodative stance with respect to the monetary policy.

"This does not mean that GREED & fear is going to give up on gold. And the yellow metal should rally again if the Fed stays dovish in the face of the dramatic cyclical recovery that is coming on the other side of the pandemic, in line with GREED & fear’s base case," he wrote.

 

Besides prone to hacking, the other risk that deterred Wood from investing in the crypto was that Bitcoin could have been declared illegal because it was used for nefarious purposes, such as illegal narcotic transactions.