Cathie Wood Thinks Bitcoin Might Replace Bonds?

Updated: Jul 29, 2021

Either Cathie Wood doesn't know what a bond is, or she doesn't know what a bitcoin is, or she doesn't know what either one is, or what currencies are for that matter.

Bitcoin should be considered a new asset class, one that may even serve as a reserve currency in the future, ARK Invest's Cathie Wood said Thursday. “You think about the traditional 60/40 stock-bond portfolio, but look what's happening to bonds right now.

 

Highlights:

  • Bitcoin is the exact opposite of a bond - it never matures and it's hard to get your money back. When a bond matures, you get your money back.

  • A currency is supposed to attempt to preserve value; it is essentially a zero-duration bond/note issued by a country, that you can use to buy stuff with - that may be what bitcoin aspires to be; but not what bitcoin is today.

  • Today bitcoin is a very speculative bet on the governments of the world (including the US and China) losing control over money and transactions.

 

This chart shows the price of the first North American Bitcoin ETF (since launch back in March when Cathie Wood made that comment) vs a 2023 maturity, Junk Bond ETF.


See, they're not anything like each other. The junk bond stayed flat and paid interest while the bitcoin lost 43% of its value. If bitcoin-like is what you're looking for from your bond portfolio, then you're doing investing wrong.

 

It might be premature to proclaim the death of the 60/40 portfolio. And, it's actually kind of irresponsible that the Queen-of-concentrated-bets-on-high-beta doesn't appreciate that the four most dangerous words in investing are:


This time it's different


It's fine if you want to invest in bitcoin, it really is, it's just not a currency and it's not a replacement to bonds. It's a big bet on a really improbable outcome. It is what it is, and as long as you realize that and bet accordingly, it's Saul Goodman.


Alternatively, your bond-layer is about managing the risk of your portfolio.


Funds Aren't Bonds

It's probably easier to buy a bitcoin than a bond, maybe that's why you might not appreciate the benefits of owning bonds directly until you read, How You Absolutely, Positively, Unequivocally, Know it's Better to Own Bonds Directly.


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