Katharine Wooller, Managing Director, Dacxi, UK and Eire
Black swan events create much opportunity, and successful investors are able to show resilience through their ability to pivot. Warren Buffet’s oft quoted maxim seems particularly relevant to the COVID era: “be fearful when others are greedy and to be greedy only when others are fearful.” 2020 has been an annus horribilis, with most traditional asset classes falling off a cliff, and it can difficult for those with cash to know where to turn.
Indeed, the year to date figures at time of writing make for grim reading: the FTSE 100 is down 26% and the S&P 500 has delivered an underwhelming 1%. Luckily there are a small number of assets which have shown phenomenal growth and are increasingly adopted by institutional and retail investors alike.
There are some well-established reputable cryptos that have bucked all trends. Bitcoin is up 81%, Ethereum is up 202%, and Litecoin is up 33%. These are some jaw-dropping returns, and it is a convincing argument for minimal diversification into, say Ethereum, when it would take more than 4 centuries to achieve the same returns as the via the S&P500 at its current rate of growth!
Recent weeks have seen solid performance in these coins. Interestingly Paypal’s announcement in October had a very positive effect on prices, with Bitcoin alone showing 25.6% growth.
You cannot overestimate the importance of this mainstream adoption from the addition of Paypal’s 340 million platform users having easy access to the asset. For contrast, Bitcoin currently has 32 million non-zero addresses, effectively 10xing the potential audience.
Unsurprisingly, a good number of institutional buyers are now enthusiastically embracing bitcoin as a hedge against inflation. The asset manager Stone Ridge Holdings Group has purchased 10,000 BTC (approx. £88m at the time of writing) as a “primary treasury reserve asset”.
Microstrategy has purchase $425m worth of BTC, and Square has invested $50m. Mode Global Holdings, a London Stock Exchange-listed company, has announced plans to make a substantial purchase, as it looks to convert 10% of its cash holdings as part of a strategy “protect investors’ assets from currency debasement. Even the investment banks have had reason to stem their usual vitriol: JP Morgan issued a research note on bitcoin stressing a “vote of confidence”.
Interestingly there seems to be an emerging trend to talk about crypto and precious metals as a perfect marriage. Indeed, champion of personal wealth creation/preservation, Robert Kiyosak has given the succinct guidance: “Do not save. Buy gold, silver, bitcoin. Dollar is dying”.
Certainly, precious metals seem to be enjoying a moment in the spotlight once again. Even Warren Buffet himself, traditionally far from a fan, has invested in gold miner Barrick Gold.
The year to date figures support this investment strategy; gold is up 25% and silver is up 29%. Interestingly a lot of the dialogue around crypto is about wealth generation, whereas precious metals investors tend to focus on wealth preservation. Regardless, to be returning to the very assets that were used thousands of years ago says a lot about our current global economic situation.
In conclusion, extraordinary events require a willingness to think outside the box. Fail to diversify at your peril! It will be interesting to see if the traditional asset classes even register as part of our new normal, or, as some suspect, we are already a fair way into a complete global economic reset.
