Chris Wood hikes exposure to crypto currency; sells gold for Bitcoin

The appeal of gold as a safe-haven asset and a long-term investment seems to be diminishing with crypto-currencies taking centre stage. After taking an exposure to Bitcoin in December 2020, Christopher Wood, global head of equity strategy at Jefferies has now increased exposure to the crypto by 5 percentage points (ppt) in his Asia ex-Japan portfolio and pared his investment in gold by equal measure. 

“The arrival of the Bitcoin ETF in America, and the growing mainstream acceptance of crypto, means that it is timely for GREED & fear to make a further adjustment to the global portfolio for US-dollar denominated pensions funds which was set up at the end of 3Q02 as a way of hedging the risk of the collapse of the US dollar paper standard. GREED & fear will add another 5ppt allocation to Bitcoin to the existing 5 per cent allocation initiated in December 2020. This will be paid for by reducing the weighting in gold by a further 5ppts,” he wrote in his weekly note to investors, GREED & fear.

Wood believes Bitcoin is a competitor to the yellow metal as a store of value and it is one with a built-in quantitative tightening dynamic due to the halving process roughly every four years. 

After Bitcoin’s astonishingly rapid recovery from the Beijing clampdown on Bitcoin mining in the mainland in June, Wood believes there is likely to be an increased speculative focus on Ethereum.

"The reason for the growing focus on Ethereum is that this protocol is at the centre of the action in the fast expanding decentralised finance (DeFi) space. DeFi is where it is possible today to see how crypto has begun to eat conventional finance," Wood said.

 

Gold demand, on the other hand, has been faltering. In the third quarter of 2021 demand for gold globally dipped 7 per cent year-on-year (YoY) and 13 per cent quarter-on-quarter (QoQ) to 831 tonnes, primarily due to outflows from gold-backed exchange-traded funds (gold ETFs), according to the World Gold Council’s (WGC’s) latest Gold Demand Trends report.

“The outflows themselves are part of a bigger picture. A year ago, investors were flocking to gold, seeking a hedge against the pandemic. And gold ETFs were particular beneficiaries of these flows, adding more than 1,000 tonnes over the first three quarters of the 2020,” said Louise Street, senior market analyst at the WGC.

Going ahead, WGC expects the full-year picture for gold demand to look very similar where strong consumer and central bank demand will mitigate losses from ETFs. "Jewellery demand will continue to exceed last year’s levels, but investment demand in total will be weaker in 2021, despite healthy bar and coin demand,” the WGC report said.