About

Ahead of the Curve provides analysis and insight into today's global financial markets. The latest news and views from global stock, bond, commodity, and FOREX markets are discussed. Rajveer Rawlin is a PhD and received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher, having followed capital markets in the US and India since 1993. His research interests include capital markets, banking, investment analysis, and portfolio management, and he has over 20 years of experience in the above areas, covering the US and Indian markets. He has several publications in the above areas. He currently teaches business and management students at CHRIST University. The views expressed here are his own and should not be construed as advice to buy or sell securities.

Wednesday, 14 March 2018

Bitcoin Signalling Major Risk Off Trade?

A look at the relationship between bitcoin returns and other asset class returns over the last year throws up some interesting details. There is a weak inverse relationship between bitcoin returns and the 10 year bond yield changes but the relationship between other asset class returns and bitcoin returns is not statistically significant. This suggests a continued melt down in bitcoin is a precursor to higher bond yields which could trigger a move out of risky assets:

Bitcoin Returns Vs Other Asset Class Returns	Correlation	Significance
S & P 500	0.156	0.273
Ten Year Bond Yield	-0.340	0.015
Euro	0.034	0.813
Gold	0.047	0.743
Copper	-0.160	0.261
Crude	-0.180	0.207

A look at the relationship of bitcoin itself with other asset classes over the last year reveals some additional info. We can see that bitcoin shows a strong positive relationships with most asset classes and the ten year bond yield and a strong negative relationship with copper. This suggests that the recent sell off in bitcoin could be a precursor to a major risk off trade:

Bitcoin Vs Other Asset Classes	Correlation	Significance
S & P 500	0.860	0.000
Ten Year Bond Yield	0.530	0.000
Euro	0.673	0.000
Gold	0.476	0.000
Copper	-0.879	0.000
Crude Oil	0.800	0.000

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My Asset Allocation Strategy (Indian Market)

Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.