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A topic that comes up occasionally when talking with clients is Bitcoin.


The cryptocurrency gained plenty of notoriety in 2017 when its value skyrocketed. Unfortunately, some people were suckered into the craze and lost money when the Bitcoin price came back down to earth.


With the volatility in the stock market in 2020 and plenty of uncertainty as the world deals with a pandemic, there has been discussion about using Bitcoin as a safe haven or hedging asset.


When we pull up the charts, however, Bitcoin has proven to be unsuccessful at helping the portfolio during downturns.

The Bitcoin chart over the last year show a big dip in March, when the stock market plummeted. In more recent activity, Bitcoin tumbled in early September when the markets hit a bump in the road.



This chart shows the S&P 500 over the last year. If Bitcoin were a true hedge, we should have seen stronger movement from cryptocurrency when the S&P 500 fell.


The price of Bitcoin and the S&P 500 have moved on a similar path for most of the year.


If Bitcoin does not protect the portfolio during tough times, what can we turn to that does provide some stability?


The old reliable is government bonds, specifically U.S. Treasuries.


The chart above is of the ETF TLT which holds long term U.S. Treasury bonds. While it did experience a very brief dip in mid-March, overall it has held its value during a volatile 2020.


The bond fund also provides interest payments that help to boost the portfolio. The yield right now is about 1.75% which is nothing to brag about, but it is 1.75% more than what Bitcoin provides.


The other asset investors turn to when they want to protect their portfolio is gold. This asset is the king of the safe haven group.


The chart above is of the ETF GLD which holds gold. It did experience that mid-March dip, but overall, it held its value fairly well during a tough stretch.


Bitcoin could still emerge as a hedge or safe haven for stock market volatility. U.S. markets had an incredible bull run for nearly all of Bitcoin's life, so we do not have a lot of data on the relationship between the cryptocurrency and the S&P 500.


However, with what we have seen so far, Bitcoin adds little protection or stability to the portfolio during market volatility.

While there are parts of the economy still struggling during this current crisis, there are also some big winners.


The obvious and most talked about winners are in the tech space. Apple, Amazon and Facebook all reported amazing quarters recently. The tech dominated Nasdaq continues to hit record highs as investors pile into that space.


The other set of winners, which get slightly less attention, are on the retail side.


Target, Walmart, Home Depot and Lowe's all recently reported earnings and they were all spectacular.


Target CEO Brian Cornell told CNBC that people have not been spending money on summer travel, and the dollars that would go towards vacations, has instead gone to spending more at stores, like Target. "Those traditional summer trips have been canceled. We’re not on planes. We’re not spending dollars on lodging, so many of those dollars have been redirected into retail," Cornell told the cable network. The same commentary came out during Lowe's earnings report. Lowe's CEO Marvin Ellison spoke about people taking the cash they did not use for vacations, and instead, putting it to work on improving their home. "We’ve got tons of anecdotal information where someone was planning to take a vacation and now they’ve decided to remodel the kitchen, where they were planning to take a vacation and they decided to remodel their entire backyard to make it a place where they could spend more time," Ellison said during the earnings call last week. The commentary makes sense. People have been at home much more often this year because of the pandemic. Of course, they want to spruce up the place where they are increasingly spending more time.

These giant retailers also reported that the positive sales trends were true all across the United States. It's not just people in the northeast or southwest, but all over the country spending rose at retailers. "We saw in all of our top 40 markets, double-digit growth. And it's one of the most narrow performances we've seen by region, by market in quite some time," said Craig Menear, CEO at Home Depot. The CARES Act with enhanced unemployment benefits and the stimulus checks sent out to many Americans also helped. Walmart noted in its earnings call that customers were doing better financially than what would normally be expected during a recession. "We see a number of consumers who are feeling better about their personal finances, but the sentiment is a little lower than what they've been a year ago," said John Furner, CEO at Walmart.


There had been some concern that when the boosted unemployment stopped at the end of July, these retailers would take a hit. However, both Target and Home Depot were asked about that on their earnings call last week. Executives for both said they continued to see strong sales into the first weeks of August. As a long term investor, it's important to think about whether this trend will continue for a while going forward. The data indicates that there are many people still cautious and not willing to get on planes or go to restaurants. Without a vaccine or cure for the coronavirus, it is hard to imagine that the behavior will change soon.



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