Investors are taking higher than normal risks. Maybe you noticed.
But, if you couldn’t glean that from — I don’t know — the outperformance of low quality stocks and the emergence of a Reddit message board as a driving force in the investment universe, you could just ask the (more than) 200 people who participated in the February edition of BofA’s Global Fund Manager survey.
Cash levels are the lowest in years, and only 13% of those who weighed in on how to characterize US equities were willing to call it a “bubble.” As the bank’s Michael Hartnett wrote Tuesday, “the only reason to be bearish is…there is no reason to be bearish.”
Beyond that, the survey showed that risk-taking is at a record high.
Of course, this is subjective, but for what it’s worth (which is apparently quite a bit, because as usual, the total AUM represented by the survey is large), the net percentage of participants “taking higher than normal risk levels” is at an all-time peak.
You won’t be surprised to learn that Bitcoin was on the “most crowded” trades list. Last month, it took the number one spot. In February, it fell to number two, behind “Long Tech,” a mainstay of crowded trades.
The breakdown was: Long Tech (35%), Long Bitcoin (27%), Short US dollar, and Long ESG (13%).
On Tuesday, Bitcoin breached $50,000 officially. I’ve weighed in more on Bitcoin over the past several weeks than I ever imagined I’d be inclined to, but circumstances are what they are. I suppose one thing I’d emphasize is that Bitcoin is risky. On one level, it’s absurd that people need to be reminded of that. But, when it’s only moving in one direction and that direction is up, it tends to get lost in the “store of value”/”digital gold” narrative.
Some have recently pointed to the fact that, at least on some windows, Bitcoin is less volatile now that it was during its last upside explosion (in late 2017/early 2018). As the figure (above) shows, that’s true, but it’s still prone to what, for almost any other asset, would count as wild swings.
Gold, by contrast, is nowhere near that volatile. Of course, you can find individual stocks that are similarly predisposed to careening about, but that begs the question.
I continue to believe that Bitcoin is the quintessential example of risk-taking run amok. And, if you ask me, it’s no coincidence that the 2017/2018 euphoric run coincided with a similarly ebullient move in equities. In early 2018, stocks were in what, in retrospect, was a full-on, melt-up, turbocharged by the Trump tax cuts. Fast forward to 2021 and stocks are again melting up, and fiscal policy is again in play, only on the demand side.
The problem with this continues to be that for all the belabored attempts to justify the price move with allusions to “increased adoption” and “institutional acceptance,” there is still no clear way to value Bitcoin. The narrative about what it’s supposed to be seems to change depending on what it happens to be doing at any given time. Sometimes, it’s a “currency.” Sometimes, it’s solely a “store of value.” Sometimes, it’s a “burgeoning asset class.” Sometimes, it’s a “movement.” Sometimes it’s just a rocketship emoji.
Ask 10 different people, and you’ll get at least five different answers, even if everyone you asked is a Bitcoin fan.
“The challenge remains whether the widening investor base can legitimize the digital asset as more than a speculative bubble,” Bloomberg’s Laura Cooper wrote this week, adding that it has no “obvious value anchor” and admits of “infinitely many price equilibria depending on market participants’ determination.”