Skybridge Capital Chief Investment Officer: Gold is good, but we are more optimistic about Bitcoin

Gold prices will surge to new highs next year, but as global debt swells, investors seeking currency alternatives should look to Bitcoin, a $7.5 billion hedge fund said.

Troy Gayeski, co-chief investment officer (CIO) and senior portfolio manager at SkyBridge Capital, said both asset classes are likely to rebound even if the Fed takes steps to reduce asset purchases. Investors often compare the two, and former U.S. Treasury Secretary Lawrence Summers said cryptocurrencies may remain a feature of global markets, similar to digital gold.

“We will continue to invest in cryptocurrencies like Bitcoin because we think the market will continue to go up,” Gayeski said in a phone interview last week, adding that while crypto assets are more volatile, “you will get more out of the same scenario than gold.”

Investors are closely watching the Fed's comments as policymakers grow more inclined to cut back on large asset purchases to rescue the U.S. economy from the turmoil caused by the pandemic as inflation rises. Monetary support has pushed the Fed's balance sheet to record levels, while strong fiscal spending has also pushed up government debt. Both could pose an eventual risk to the value of the dollar, potentially boosting the appeal of other currencies.

“All of the fiat alternatives that have experienced significant recent corrections are now in a better position to weather an eventual contraction and gradual slowdown in money supply growth, rather than continuing to hit new highs,” Gayeski said.

Both Bitcoin and gold have seen significant volatility this year, a trend that began with a debate over whether Bitcoin is drawing demand from the gold market. Bitcoin surged to an all-time high of nearly $65,000 in April before falling sharply and is currently trading around $36,000. Meanwhile, gold prices briefly fell into a bear market in March but have since reversed course and erased their losses so far this year.

Major Wall Street banks are divided over the relative merits of the two assets — with Citigroup Inc. saying gold is “losing its luster” relative to cryptocurrencies, while Goldman Sachs Group Inc. says the two assets can coexist. Tesla Inc. boss Elon Musk, whose tweets have caused bitcoin price swings several times this year, said in May that he favors cryptocurrencies over fiat or paper currencies.

Gold, which hit an all-time high of more than $2,075 an ounce last year, has bottomed out, according to Gayeski, who believes most of the market’s concerns about tapering have faded and that even if announced, the Fed would not begin tapering until 2022.

“Going forward, there’s a pretty high chance that gold prices will continue to rise and hit new highs next year,” Gayeski said.

Even as signs of an economic recovery emerge, the Fed is buying $120 billion a month in Treasurys and mortgage-backed securities, and its balance sheet has surged to $8 trillion, or about a third of GDP. The move could boost Treasury yields and the dollar, weakening gold’s appeal, but talk of tapering that support is winding down.

SkyBridge has a small exposure to a gold miner and therefore also benefits from the continued rise in gold prices. Its main exposure is to US cash flow generation strategies, supported by tangible assets, distressed corporate credit and convertible bond arbitrage. In addition, SkyBridge's Bitcoin Fund has risen 51.2% since its inception in December last year to June 1 this year.

SkyBridge founder Anthony Scaramucci has teamed up with First Trust Advisors to launch an exchange-traded fund (ETF) that plans to buy and sell Bitcoin. Gayeski expects the U.S. Securities and Exchange Commission (SEC) to approve the product in the fourth quarter of 2021 or the first quarter of next year.

“The only reason we exist as a professional is to find interesting ways to generate attractive non-correlated returns that also have a compelling risk-reward profile,” Gayeski said. “We have a small but significant position in alternatives to fiat currencies such as Bitcoin, which amplifies the strategic composition of our broader portfolio.”