Don’t Buy Bitcoin to Hedge
With the U.S. and global stock markets going haywire, we would like to refer interested hedgers to a couple of our posts over the last couple months for some ideas. First, we warned investors forget bitcoin and consider inverse ETFs if they are looking for some type of doomsday hedge against fiat currency devaluation and the financial system in general. As we offered in the article, it was already the largest bubble in human history, and it got even more inflated in the weeks after we rote the article. But the outcome was never in doubt and truly parabolic moves are always retraced.
Now if bitcoin continued to crash and ended up all the way down to around $200 per ‘coin’ AND there was a safer, more liquid way to buy bitcoin, like through a bitcoin ETF , it might be something to consider. But with bitcoin having presumably peaked and having lost over 2/3 of it’s value (currently around $6,246 per bitcoin as we write) the ability to ever buy bitcoin through an ETF is looking less and less likely.
Best Inverse ETFs for 2018
A better way to protect your portfolio against a Fed induced stock and bond bubble is with inverse ETFs (or raising cash). We published our list of the three best inverse ETFs for 2018 back in November of 2017. First, we highlighted the epic run up in the NASDAQ 100 stocks (up about 7x since the financial crisis lows) and the concentration risk inherent with the lopsided overweighting of Apple and the combined classes of Google shares. Then, we reported on what happened at the end of 2015 when the Nasdaq 100 ETF, QQQ, was gapping lower in a flash crash because Apple and other heavily weighted holdings were halted for trading due to circuit breakers (bad ideas). QID is a single inverse QQQ ETF which aims to deliver the opposite return of the Nasdaq 100 index for one day and was featured in our article as our #1 best inverse exchange traded fund.
Our second selection on the 2018 list hasn’t materialized yet, but we would be very surprised if it didn’t by the end of 2018. It is SJB, the single inverse of the U.S. high yield market. So far, inverstment grade and high yield spreads have remained stubbornly tight, but if the U.S. Treasury bonds signal rising interest rates in earnest, it could get ugly for junk bonds.
Our #3 ETF was VXX which is actually part of our volatility ETF list but is nevertheless a bearish expression of the equity markets overall. VXX went berserk today, rising roughly 60% including after hours trading as the spot VIX was up 100% on the day. This volatility spike nearly terminated (blew up) XIV and other short volatility ETFs in the process.
The futures are pointing to yet another 1000 point drop at the open tomorrow (Tuesday).* Be very careful with this market. We encourage concerned investors to read some of our posts on hedging against a bear market, which we believe is close at hand. Run these ideas by your financial advisor and consider the best hedging strategies for your particular situation.