Warren Buffett Swings into US Treasuries – Bad Sign for Bitcoin’s Price?
Warren Buffett has put most of Berkshire Hathaway’s cash into short-term U.S. Treasury bills now that they offer as much as 3.27% in yield. However, even if the news does not concern Bitcoin (BTC) directly, it could still be a pointer to the downside potential for the BTC price in the near term.
Berkshire Hathaway seeks safety in T-bills
Treasury bills, or Treasury bills, are U.S. government-backed securities that mature in less than one year. Investors prefer them over money market funds and certificates of deposit (COD) because of their tax advantages.
Related: Stablecoin issuers have more US debt than Berkshire Hathaway: Report
Berkshire’s net cash position was $105 billion as of June 30, of which $75 billion, or 60%, was held in treasury bills, up from $58.53 billion at the start of 2022 of total cash reserves of $144 billion.
The move is likely a response to the massive jump in bond yields since August 2021 in the wake of the Federal Reserve’s hawkish policy aimed at curbing inflation, which stood at 8.4% in July.
For example, the three-month US Treasury was yielding 2.8% on August 22, compared to near zero a year ago. Similarly, the yield on US one-year Treasury bills has risen from zero to 3.35% in the same period.
Meanwhile, non-yielding assets such as gold and Bitcoin have fallen by about 2.5% and 57% since August 2021. The US stock market benchmark S&P 500 saw a decline, losing almost 7.5% over the same period.
Related: BTC Loses $21K Despite Miners’ Surrender Exit? 5 things to know in Bitcoin this week
Such a difference in performance presents T-bills as an ultra-safe option for investors compared to gold, Bitcoin and stocks. Buffett’s T-bill strategy suggests the same, a more downside bet for risk assets in the near term — especially as the Fed gears up for more rate hikes.
“Buffett is a value investor, so he doesn’t want to allocate much when stock markets are as overvalued as they have been for the past five years,” said Charles Edwards, founder of quantitative crypto fund Capriole Investments.
Meanwhile, Andrew Bary, an associate editor at Barron’s, emphasized the market’s potential to follow Buffett’s strategy, saying:
“Individual investors may want to consider following Buffett’s lead now that they are yielding as much as 3%.”
Bitcoin: safe haven or risk?
Positive-yielding debt risk dampens demand for other potential safe havens, including Bitcoin. In other words, increasingly risk-averse investors may choose assets that provide fixed returns over those that do not.
The development of Bitcoin-focused mutual funds in August supports this argument with capital outflows for three consecutive weeks, including a $15.3 million exit in the week ending August 19.
Overall, these funds have lost $44.7 million on a monthly basis, according to CoinShare’s weekly report. In total, digital asset investment products, including BTC, have witnessed monthly outflows totaling $22.2 million.
Does that mean Bitcoin will continue to lose its luster against positive yielding US Treasuries? Edwards disagrees.
“Allocation to Treasuries and other low-yield cash products is really a case-by-case decision depending on an individual’s goals and risk appetite,” he explained, adding:
“In the short term, there are times when it makes sense to hedge against Bitcoin’s volatility with cash, the best cash is the US dollar. But in the long term, I think all fiat currencies tend to zero against Bitcoin.
Edwards also points out that Buffett’s long-term strategy is still largely risky. Notably, Berkshire used 34% of its cash holdings to buy stocks in May, and that over 70% of its portfolio still consists of risky assets.
“When I look at Buffett’s 75% risk allocation, and I know that Bitcoin has been the best performing asset of all asset classes over the last decade, with the highest risk-adjusted return, I know where I want to put my money,” he adds.
However, Buffett’s portfolio will likely continue to avoid direct BTC investments as the “oracle of Omaha” remains a fierce critic. In February 2020, he said it “creates nothing,” adding:
“I do not own any cryptocurrency. I’ll never… You can’t do anything with it except sell it to somebody else.”
Earlier this year, however, Buffett’s Berkshire Hathaway increased exposure to a Bitcoin-friendly neobank while reducing its holdings in Visa and Mastercard.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
