DBS: Bitcoin Mirroring Gold\'s Scarcity, But Treat Crypto as Satellite in Portfolios

Singapore’s DBS, Asia’s leading financial services group, considers Bitcoin and cryptocurrencies as potential diversification tools for investment portfolios, subject to some key considerations.

Singapore’s DBS, a leading financial services group in Asia, sees Bitcoin and cryptocurrencies as potential diversifiers for investors’ portfolios, but with some key considerations. Responding to Blockhead’s questions at its 2H2024 Chief Investment Office Market Outlooks session, Daryl Ho, senior investment strategist at DBS, said Bitcoin’s limited supply makes it a compelling alternative, mirroring gold’s scarcity. “The profiles of Bitcoin and gold are quite similar,” said Ho. “So I think that’s the narrative. You’re hearing about Bitcoin becoming increasingly acceptable, and that’s just a positive sign on its own.” He highlighted the recent approval of spot Bitcoin ETFs by the U.S. Securities and Exchange Commission (SEC) as a major step forward for mainstream adoption. However, Ho noted Bitcoin’s lack of history compared to gold, a proven store of value for millennia. “Gold has 6,000 years of human history behind it,” he said. “You don’t have that for Bitcoin.” DBS recommends investors to focus on stocks, bonds, and traditional assets in their portfolios. Hou Wey Fook, chief investment officer, emphasized this point. “We treat cryptocurrency as a satellite, so it doesn’t sit within our core portfolio construct,” he said. Investors hoping for quick gains from crypto might need to be patient, according to Ho. “The easy money has already been made,” he said, referring to the past surges linked to major catalysts like halving events and the SEC approval. Ho emphasized the role of external factors like monetary policy in influencing Bitcoin’s price. Historically, Bitcoin bull runs have coincided with periods of quantitative easing (QE) or fiscal stimulus by governments. “If you look at the past bull runs,” Daryl said, “the halving occurring approximately every four years tends to catalyze the movement, but I think on the back of that it’s also quite coincidental that there were also external factors that were supporting the space.” He cites past QE programs and the 2017 tax cuts in the U.S. as examples of such external factors. With current economic conditions featuring high inflation and strong growth, Ho believes there’s little incentive for the Federal Reserve to loosen monetary policy. This, in turn, could limit crypto’s potential for explosive growth in the near future. “If you want to make that quick buck in crypto, it’s not going to work for you so soon,” he said. In conclusion, Ho said he views Bitcoin as a long-term play, similar to digital gold but with higher volatility. “It’s a bit like digital gold,” he said. “If you are a bit more forward-thinking you might want to allocate a little bit as a satellite play… but it’s not going to give you accelerated gains until you have the combined factors of the halving and the effects of either monetary or fiscal stimulus.” DBS anticipates sideways movement for crypto in the second half of 2024 due to the absence of additional catalysts. Risk Assets in Play The bank’s CIO Insights for the second half of 2024, titled “Risk Assets in Play,” presented a positive outlook for risk assets in the coming quarters. “Stay with quality companies with deep moats for equities, investment-grade with longer duration for bonds, and overweight gold and alternatives like private assets. Such a portfolio construct will demonstrate superior risk-reward over market cycles, while harnessing “risk premiums”, or incremental returns over cash,” DBS said. Key highlights of its outlook include: New Investment Theme: Space During the market outlooks session, DBS also introduced a new investment theme: space technology. Hou highlighted the growth of the “space economy” as a natural progression from the innovations driving BigTech’s recent success. The bank cited cost reduction via the operationalization of reusable rockets, proliferation of small satellites, and increased government spending in the industry as reasons for a promising future for space-related ventures. The space economy is projected to expand rapidly, reaching an estimated $772 billion by 2027. Within this booming sector, DBS identifies key investment themes such as companies providing the infrastructure and support systems for space exploration, technologies enabling precise positioning and navigation in space, the utilization of space-based technologies for monitoring and analyzing Earth’s environment, and the emerging market for space travel experiences.

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