Barron’s, an American finance publication operated by Dow Jones & Company, has given a rare suggestion to its audience to hedge their stock portfolios ahead of the upcoming election. The risk hanging over the market could also be responsible for the recent collapse in Bitcoin.
Given the recommendation, how should crypto investors consider hedging their portfolio too? Or should stock market investors consider hedging against uncertainty with Bitcoin?
Barron’s Warns Of Stock Market Decline, Recommend Hedging Portfolio Ahead Of “Weird” Election
In a new report from financial market magazine Barron’s, the firm advocates hedging a stock portfolio against the coming uncertainty surrounding the 2020 presidential election.
“Portfolio hedging is something we rarely endorse because most investors are terrible at it, and the market generally prices downside put options with such intense fear premiums that most people stand a better chance of winning the lottery,” the report starts off with.
Even with lottery-like odds, Barron’s is still saying it is wise for even unskilled investors to try to hedge their portfolio against risk. Barron’s is recommending “put” options on the S&P 500 as the ideal hedge, but there are several ways an investor can hedge against risk.
Related Reading | VIX Raising “Red Flag” On Stocks, Could Be Bearish For Bitcoin
For example, investors are currently taking profit on all of these assets and fleeing into cash in preparation for uncertainty. It prompted the S&P 500 and Bitcoin to sell-off over the last 24 hours after reaching 2020 highs.
Barron’s points to election results that are likely to be heavily contested, leading to a prolonged showdown and stressful situation for investors.
They also highlight how tensions in the United States surrounding political and racial views have led to protests, violence, and the highest increase in gun ownership in years.
Lastly, they call out how the VIX – a measure of expected stock market volatility – always rises during election years, and that this year is especially heightened due to the pandemic.
BTCUSD Versus S&P 500 Versus VIX Daily Comparison Chart | Source: TradingView
How Can Crypto Investors Hedge Their Bitcoin and Altcoin Portfolios Against Risk
As for how crypto investors can hedge their portfolios, there’s always cash, Tether, or simply holding Bitcoin for the long haul. If things get particularly bad in markets ahead of the election, high-risk altcoins may take the brunt of the beating.
Related Reading | This Monthly MACD Bearish Divergence Warns Of Imminent Bitcoin Crash
Crypto investors would be wise to reduce altcoin exposure if Bitcoin continues to decline. Crypto investors that are holding spot Bitcoin, can potentially open a short position to hedge against any coming drawdown.
Finally, the most confusing factor in Bitcoin’s use as a hedge against inflation and economic uncertainty. Some have called it an insurance policy of sorts, but the fact remains that Bitcoin is unlike other assets, and given the asset’s scarcity and recent halving, it could be immune to the impact of the election.
If Bitcoin can rise during even the most uncertain times the world has ever faced, stock market investors may seek to hedge with Bitcoin, much like Nasdaq-listed MicroStrategy has.
Whatever way an investor chooses to hedge, Barron’s advice remains valuable: It is time to hedge against the election, any way you can.