Bitcoin is the world’s ‘most crowded’ trade

The digital currency bitcoin is the world’s ‘most crowded’ trade, according to the Bank of America Merrill Lynch's December global fund manager survey.

The research surveyed 172 global fund managers with $480 billion under management. Nearly one in three (32 per cent) named bitcoin as the most crowded trade. This is an increase from 26 per cent in September when the digital currency first led the list.

That so many traders are betting on bitcoin may not come as a surprise, given its astronomical rise. And yet, there is an ever-growing chorus of expert investors who see bitcoin as a more spectacular bubble than the Dutch Tulip mania of the 17th century, when the price of trendy tulips reached extraordinarily high levels and then drastically collapsed. 

-Bitcoin’s rise causes gold demand to slump

Critics include Janet Yellen, the outgoing chair of the Federal Reserve (Fed), who called bitcoin a ‘highly speculative asset’ and the Jamie Dimon, the CEO of J.P. Morgan, who called it a ‘fraud’. 

The second most crowded trade is technology stocks, according to 29 per cent of respondents. This includes the FAANGs (Facebook, Amazon, Apple, Netflix Google) in the US, as well as fast growing tech firms in China, most notably Baidu, Alibaba and Tencent. 

Interestingly, while 54 per cent of respondents expect ‘high growth and low inflation’ in 2018, fund managers have also increased their cash positions for the first time in four months. The survey revealed their cash weightings went up to 4.7 per cent from 4.4 per cent last month, which means it’s above the 10-year average of 4.5 per cent.

-FTSE 100 winners and losers in 2017

This shows that fund managers are increasingly positioning themselves against a possible dip in the markets, as they believe equities to be overvalued. This is a view shared by both Saltydog and our Tactical Asset Allocator column.  

When asked when equity markets will peak, 25 per cent said they see a peak in the first quarter in 2018, 30 per cent said the second quarter, and 28 per cent said the second half of the year.

A policy mistake by the Federal Reserve or the European Central Bank continues to be the top risk cited by investors (23 per cent); followed by a crash in global bond markets (15 per cent) and a Chinese debt crisis (14 per cent).

‘Despite surging credit and equity markets, investors increased their cash balance back into buy territory,’ says Michael Hartnett, chief investment strategist at the bank. ‘This paves the way for more risk asset upside in the beginning of 2018.’

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