Bitcoin Mercantile Exchange (BitMEX), one of the largest cryptocurrency derivatives exchanges in the world, says that they “no longer think that dated volatility-related bets are an effective way to protect portfolios because they are now too expensive.”
THe BitMEX team stated:
“We believe that inflation linked government bonds could be the main pillar going forwards as part of one’s protection strategies, as more of a tactical position. While gold, Bitcoin and to a lesser extent the yen, could be the other main pillars.”
BitMEX argues that the economic challenges and problems we’re experiencing today may be attributed to the outdated structure of the legacy financial system. The exchange operator claims that the COVID-19 outbreak is now an “aggravating factor” which will make current economic problems even worse, however, it’s not a “fundamental” cause.
The exchange said that the longer-term economic damage that will be “caused by the extent of deleveraging that may follow, is somewhat inevitable and cannot really be blamed on the virus” because if it wasn’t the pandemic then “something else may have come along.”
Last month, the S&P 500 Index had recovered after crashing, but it was still down 7.9% YTD, when BitMEX published its report on May 22, 2020.
The S&P 500 rallied 35.9% after the March 12, 13 2020 crash which completely took down several Fintech and crypto firms including Adaptive Capital.
The BitMEX team confirmed:
“Remarkably April 2020 witnessed the largest monthly rise in the stock market since 1987, all while millions of Americans lost their jobs at the same time. What this indicates is that liquidity considerations, driven by Fed policy, are outweighing weak economic fundamentals.”
BitMEX’s blog post pointed out that Bond ETFs traded at a significant discount to NAVs for several days in March 2020. The Blackrock ETF LQD traded at about a 6% discount.
The Federal Reserve “intervened faster and more aggressively than we thought,” BitMEX noted. The Fed appointed the biggest ETF issuer, Blackrock, to monitor the bond-buying program, which includes the company’s line of ETF products.
Interestingly, BitMEX recommends that investors may want to consider adding Japanese yen to their portfolios. They point out that the last time gold was at around the mid-$1,700s (in 2012), the yen had been a lot stronger as it was trading at about ¥78 per US$, compared to currently around ¥108.
The exchange notes that Japanese investors have large amounts of investments in overseas markets and during a crisis these funds are often repatriated, which can increase the value of the yen.
BitMEX went on to mention that billionaire hedge fund manager Paul Tudor Jones has argued that investors should consider allocating a small percentage of their portfolio to Bitcoin (BTC).
Tudor had compared Bitcoin to more traditional or established financial assets, like cash and the gold bullion, and said that even though BTC was not as good of a store of value right now, it was a lot cheaper, which makes it a decent investment.
Tudor has said:
“Bitcoin reminds me of gold when I first got in the business in 1976. Gold had just been productized as a futures instrument (like Bitcoin recently) and had enjoyed a heck of a bull market, almost tripling in price. It then corrected almost 50% in nearly two years similar to Bitcoin’s 28-month 80% correction. But in the case of gold, it was a tremendous buying opportunity as gold went on to more than quadruple past the prior highs.”
BitMEX concluded that COVID-19 seems to be accelerating digital technology and internet adoption, which is benefiting big tech firms.
Meanwhile, many SMEs have been negatively impacted by the pandemic, which indicates that we “need to repair their balance sheets and prepare for the next rainy day (or rainy decade).”