There are billions of dollars now set to move from stocks to bonds by the end of March as US-based asset management firms rebalance their portfolios. And it can have a direct or indirect impact on the Bitcoin market.
Nikolaos Panigirtzoglou, a cross-asset research analyst at JPMorgan & Chase, notes that pension funds, insurance companies, and similar large investment groups will sell their stock positions in search of positions. position on the bond market. According to Panigirtzoglou, the move will emerge as investors seek to return to the classic 60/40 ratio. It is a portfolio execution strategy in which asset managers invest 60% of their capital in stocks and 40% of their capital in government bonds.
Panigirtzoglou told the Financial Times:
“The rebalancing may help explain bond market performance more strongly so far this week, as transfers are usually concentrated in the last two weeks of the quarter.”
The recent fall in US bond prices, leading to a plunge in a 10-year US Treasury note, caused its yields to rise from 0.917% at the beginning of 2021 to about 1.617% on March 25. Meanwhile, the MSCI index of equity in developed markets increased 2.63% in the same period.
MSCI index of developed countries | Source: MSCI
Given the difference between equity and bonds, analysts expect the quarter-end rebalancing to be significant as more capital moves into fixed income.
Will it affect Bitcoin?
According to Australia’s Future Fund and Singapore’s GIC Pte – two of the largest sovereign wealth funds in the world, it is now more difficult for investors to generate profits from the bond market because of yields. Theirs are still at historic lows.
Central banks in developed economies have been creating artificial demand for government debt as part of their strategies to protect their economies from the consequences of the Corona pandemic.
As a result, the 60/40 strategy loses its appeal. Accordingly, investors put more money into risky assets and even emerging financial assets like Bitcoin that global financial experts once dismissed as either too confusing or a complete scam. .
With the prospect of redistribution later in the quarter, Bitcoin continues to be a viable alternative to gold. Its more provable scarce features appeal to investors in need of hedge against inflation. Billionaire investors Ray Dalio, Paul Tudor Jones, and Stan Druckenmiller are some of the top names investing in Bitcoin because other safe havens like bonds don’t yield higher returns.
Goldman Sachs said in a recent report that 40% of the nearly 300 customers who come into contact with Bitcoin show that the asset’s price volatility is no longer causing them to worry too much. Eventually, Morgan Stanley started offering three Bitcoin funds to its wealthy clients, sparking hope that all the money flowing out of the stock market will not stop at just bonds.
However, Bitcoin is still valued as highly as a security. That could lead the cryptocurrency lower in the short term based on technically overbought value.