Bitcoin represents a legitimate alternative to gold for risk averse capital looking for a store of value, according to Christopher Wood of Jefferies.
In his note to investors which runs under the title, Greed and Fear, Wood said Bitcoin was up 305 per cent for the whole of 2020. It has since risen by a further 28 per cent so far in 2021 to $36,999.
"It has now become clear to GREED & Fear that Bitcoin represents a legitimate alternative to gold for risk averse capital looking for a store of value, amidst accumulating evidence of policies of currency debasement in the G7 world", Wood said in the note.
In this respect, the total market capitalisation of Bitcoin at the end of 2020 was $539 billion, compared with estimates of $12 trillion in above ground gold, Wood said.
Recently, Bitcoin surpassed Warren Buffet's Berkshire Hathway in market capitalization and only ranks behind Apple, Microsoft, Amazon, Alphabet, Facebook, Tencent, Tesla, Alibaba and Taiwan Semiconductor in global market capitalization league tables.
Wood said the global portfolio for US-dollar-based long-term global investors, such as pension funds, remains dominated, as it has been since inception at the end of 3Q02, by the weightings in physical gold bullion and unhedged gold-mining stocks, which still account for 45 per cent and 20 per cent of the portfolio respectively
Still a major change was made in the portfolio last quarter when a 5 per cent allocation was made in Bitcoin on 17 December at a price of $22,779, by reducing the allocation to gold bullion by 5ppts.
"The major reason for this allocation is that Bitcoin has now become investible for institutions with custodian arrangements in place for digital assets", Wood said.
Wood has said a bearish US dollar calls for a recommendation to overweight Asian and emerging market equities. From a global equity asset allocation perspective, it is a further confirmation of the case to own cyclical stocks over growth stocks long propagated here as reflected in the action this week in bank stocks, courtesy of a steepening US yield curve, and energy stocks, he said.
Expectations of US infrastructure stimulus are rising while it looks ever more likely to be the case that the FANG stocks have peaked as a share of S&P500 market cap, Wood said.