2021 asset classes: soaring bitcoin leaves gold in the dust


Gold is among the worst performing major asset classes of 2021 despite accelerating inflation, as the precious metal’s luster has faded alongside what some see as its digital equivalent, bitcoin. .

The precious metal, often hailed as a hedge against inflation, has fallen 5% this year, even with investors seeking protection as consumer prices soar across the world. Bitcoin, on the other hand, has shown a significant, albeit volatile, rally in 2021, appreciating 65% during the year to date.

Francisco Blanch, strategist at Bank of America, said the Federal Reserve’s withdrawal from crisis-era stimulus and rising US bond yields caused “strong headwinds” for gold. . A stronger dollar, which makes the metal more expensive for international investors, also weighed on its performance, he said.

“Some flows that may have historically gone to gold may have gone to crypto assets,” Blanch added. Institutional investor digital asset allocation has increased “across the board” over the past year and a half, he said.

Bitcoin enthusiasts see what they call “digital gold” as a bulwark against inflation, pointing out its limited supply. However, cryptocurrencies such as bitcoin and ethereum were more akin to “risk assets” than havens, said Blanch, who described them as highly volatile and increasingly “correlated with equities and at risk “due to their increasing use in certain investor portfolios.

Bitcoin’s risk-adjusted returns, which take volatility into account, show much slimmer gains. The digital asset’s Sharpe ratio was 0.9, lower than most other asset classes, according to Goldman Sachs calculations. Its price dropped by $ 10,000 in the space of an hour in early December.

Nikolaos Panigirtzoglou, cross-market analyst at JPMorgan, said Bitcoin’s high volatility was “not incompatible” with a market value thesis, which “has more to do with the belief that assets such as bitcoin or ‘gold will retain their value if something systemic happens or the financial system is in crisis.’

Elsewhere, US energy stocks and the price of oil performed well as the year saw the economy reopen. “Monetary and fiscal support coupled with immunization deployments” has increased the mobility of people and goods, which has increased demand for energy, said Gregory Perdon, co-director of investments at Arbuthnot Latham.

Although the emergence of the Omicron coronavirus variant has cast doubt on predictions, analysts remain optimistic. “We are much more excited about cyclical commodities [than gold] because we think the business cycle will continue next year, ”Blanch said.

Real estate stocks also benefited from the reopening, with the S&P 500 sector rising 41% based on total return. Real estate investment trusts have a habit of beating public stocks when inflation and growth are both above average or above 3%, according to JPMorgan.


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