Investors have moved a record amount of funds out of stocks and into bonds and other ‘safe’ assets, like Bitcoin, according to analysis. Bond inflows last week reached $23.6 billion, which would see a record $1 trillion added to the $10 trillion bond market in 2020. By comparison, equity funds took in a net $8 billion in 2019.
The massive injection of investment into the bond market appears to indicate investor distaste for volatility. As the stock market has reached all-time highs, the swings in the market have increased dramatically. Such volatility creates anxiety for investors seeking to protect gains.
Bonds are traditionally considered low-risk investments. Returns, though potentially much smaller, are guaranteed. As such, bond investors are able to receive certain returns without exposure to the dangers of high volatility.
The push into bonds reflects the broader market desire for ‘safe-haven’ assets such as gold and precious metals. The pursuit of stability has also been driven by the fear of global pandemic associated with the coronavirus. Potential economic upheaval related to the disease has increased investor anxiety.
As investors have moved to safe-haven assets, Bitcoin has seen a spike in value as well. The first six weeks of 2020 saw the coin break $10,000 for the first time since September of last year.
Many are calling the current Bitcoin investment climate the perfect storm. Investors pursuing safer returns have moved into Bitcoin, and the upcoming ‘halving’ event has increased anticipation of returns. The event is designed to mitigate inflation by lowering block rewards for miners.
Additionally, the market has benefitted from the overall weakness in global economies. While the US stock market is flying, European economies are falterings, and inflation in a host of nations has spiked.
As investors pursue stability and safety, bonds and safe-haven assets should continue to see improvement. While the market will likely taper, the movement into the asset classes will provide an increased activity for Bitcoin before the halving event.