Fiat-currency alternatives like bitcoin and gold are likely to remain resilient even if the U.S. Federal Reserve curtails its liquidity-boosting quantitative easing (QE) program, according to SkyBridge Capital, a $7.5 billion hedge fund.
"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," Troy Gayeski, co-chief investment officer and senior portfolio manager at SkyBridge Capital, told Bloomberg last week.
"We're going to stick to bitcoin and crypto because we just think there's more upside," Gayeski added.
"Taper" refers to a gradual unwinding of the monetary stimulus that has triggered risk taking across financial markets over the past 12 months. Bitcoin, for one, rallied from $10,000 to over $60,000 in the seven months to April before recently falling to $30,000. Gold rallied to record highs above $2,000 an ounce in August 2020. However, the yellow metal deflated to lows near $1,680 early this year and was recently trading near $1,880.
Markets have been betting on an early unwinding of stimulus by the Fed ever since the U.S. economy started to show signs of life in the first quarter, reinforced by April inflation climbing to the highest level since 2008.
On Sunday, U.S. Treasury Secretary Janet Yellen said President Joe Biden's $4 trillion spending plan would be positive for the economy, even if it leads to higher interest rates.
Taper talk or rate-hike expectations tend to lift yields on U.S. Treasurys, making the dollar more attractive and weakening demand for assets like gold and bitcoin. The 2013 "taper tantrum" prompted a decline in gold and emerging-market currencies.
Still, the 10-year Treasury yield has been locked in a range of 1.5% to 1.7% this quarter, having risen from 0.98% to 1.74% in the first three months. Furthermore, the Fed has downplayed the inflation scare and taper speculation in recent weeks, and remains committed to buying $120 billion of Treasury and mortgage-backed securities a month.
Gayeski expects the central bank to stand pat for the rest of the year. "Even when it's announced, the Fed is not going to start reducing the pace of its purchases until 2022," Gayeski said.
According to Bloomberg, SkyBridge Capital's bitcoin fund has gained more than 50% since its inception in December. The hedge fund also has a small exposure to a gold miner.