Bitcoin takes most crowded trade crown for first since end of 2017

Global fund managers now view bitcoin as the most crowded trade, beyond previous fears about being long US tech and growth, according to the latest Bank of America Merrill Lynch survey.

The findings, which cover January 2021, come at a time when bitcoin sits $34,400 on 20 January, with market commentators suggesting it could reach a height of $146,000 in the long term.

However, European fund selectors remain sceptical over both their ability to access bitcoin and its long-term, fundamental strength.

In the January Global Fund Manager Survey, 36% of respondents said being long bitcoin was the most crowded trade, compared to around 30% who said being long tech was a worrying consensus trade. Being long tech had been viewed as the most crowded trade dating back to June 2020.

Elsewhere in the report, the 217 fund managers who took part were found to have dropped cash holdings to levels not seen since 2013. The average weight of holding was 3.9%, while allocation to stocks was at a two-year high.

The overall reading was bullish, with expectations for earnings-per-share, yields and the emerging markets at record highs. However, BofA said the overwhelmingly positive response meant that there was a growing fear of an imminent correction.

On the correction aspect, fund managers said it would either be drawn from peak growth on the vaccine or China’s growth faltering. There was also some concern raised about the potential for liquidity to become more stretched.

Vaccination fears bled into the question over long-term tail risk, as the rollout of vaccines was viewed as a potential risk for one-third of respondents. This is while a new taper tantrum – where the raising of rates destabilises markets – was the second biggest fear, ahead of a market bubble.

Two-thirds of investors expect emerging markets to be the top-performing asset class for 2021, which has led to a record overweight here. This is the same for small cap versus large cap, with a record overweight here as well.

More contrarian-minded investors are looking at being long Treasuries/short commodities, or long the US dollar and short the emerging markets. There was also some clamour for being long consumer staples, while shorting small-cap stocks.

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