According to a $7.5 billion hedge fund, gold will rocket to new highs next year, but investors seeking monetary alternatives as global debt rises should go to Bitcoin.
Even as the Federal Reserve begins to trim asset purchases, both are expected to surge, according to Troy Gayeski, co-chief investment officer and senior portfolio manager at SkyBridge Capital. Investors routinely link the two, with former Treasury Secretary Lawrence Summers predicting that cryptocurrencies will remain a part of global markets as “digital gold.”
In a phone interview last week, Gayeski added, “We’re going to stick on Bitcoin and crypto because we just think there’s more upside.” While there is more volatility, “you will extract a little bit more juice from that same phenomena than you will in gold,” he noted.
Investors are watching the Federal Reserve’s comments as inflation rises and policymakers get closer to reducing the massive asset purchases that rescued the economy from the pandemic’s chaos. The Fed’s balance sheet has reached new heights as a result of the monetary stimulus, while aggressive fiscal expenditure has increased government debt. Both may constitute a threat to the dollar’s value in the future, thereby enhancing the appeal of alternatives.
“All fiat-currency alternatives — which have all gone through fairly recent substantial corrections — are in a much better place now to handle that eventual taper and gradual slowing of money-supply growth, than they were as they were making higher-highs after higher-highs,” Gayeski said.
Both Bitcoin and gold have experienced significant price swings this year, amidst controversy about whether the cryptocurrency was diverting demand away from gold. In April, the digital currency hit a high of around $65,000 before plummeting. It was worth roughly $36,000 at the time. Gold, on the other hand, came dangerously close to entering a bear market in March before reversing direction to erase year-to-date losses.
Leading Wall Street banks are split on the relative benefits of the two assets, with Citigroup Inc. claiming that gold is “losing luster” in comparison to cryptocurrencies, while Goldman Sachs Group Inc. argues that the two can coexist. Elon Musk, the CEO of Tesla Inc., whose statements have roiled Bitcoin values this year, claimed in May that cryptocurrencies are preferable to fiat, or paper, currencies.
According to Gayeski, gold, which achieved a high of over $2,075 an ounce last year, has finally established a floor. Many of the market’s concerns about tapering have faded, and even if it is announced, the Fed will not begin to reduce the pace of its purchases until 2022, he added.
“Going forward, the probability of gold continuing an uptrend is fairly high, making new highs over the next year,” he said.
Despite signs of improvement, the Fed continues to buy $120 billion in Treasury and mortgage-backed securities each month, and its balance sheet has grown to $8 trillion, or almost a third of GDP. Talks about reducing that assistance, which has the ability to boost Treasury yields and the currency, lowering gold’s appeal, are getting closer.
SkyBridge, a fund-of-funds manager, has a modest position in a gold miner that is dependent on the price of gold continuing to rise. Its main exposures are to cash-flow-generating strategies backed by actual assets in the United States, as well as distressed corporate credit and convertible bond arbitrage. Since its launch in December of last year, the company’s Bitcoin fund has gained 51.2 percent through June 1.
Anthony Scaramucci, the creator of SkyBridge, has partnered with First Trust Advisors on an exchange-traded fund that would purchase and sell Bitcoin, and Gayeski anticipates the Securities and Exchange Commission to approve the product in the fourth quarter of 2021 or the first quarter of the next year.
“The only reason we exist professionally is to find interesting ways to generate attractive non-correlated returns that also have an attractive risk-reward profile,” said Gayeski. “The mix of strategies in our broader portfolio is amplified by having a small-but-meaningful position in alternatives to fiat currencies like Bitcoin.”