Inflation Takes Over From COVID as Biggest Market Risk: Bank of America

Betting on a bitcoin rally remains one of the hottest trades.

AccessTimeIconMar 16, 2021 at 1:07 p.m. UTC
Updated Sep 14, 2021 at 12:27 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

In a sign of just how dramatically the coronavirus vaccine has altered the market calculus on Wall Street, the fear of soaring inflation has displaced the pandemic as fund managers’ biggest worry, according to the latest monthly survey by Bank of America. 

And betting on a bitcoin rally remains one of the hottest trades.

According to the survey, higher-than-expected inflation is now seen as the biggest “tail risk” – an event that’s seen as statistically unlikely but with potentially dramatic consequences. The coronavirus slipped from the No. 1 concern for the first time since February 2020. 

"This implies that global fund managers think vaccination will finally lead us to re-opening and that the extremely loose monetary policy in times of economic recovery is not without risk," Jeroen Blokland, portfolio manager for the Robeco Multi-Asset funds, noted in a daily analysis. 

Concerns about rising inflation could boost hedging demand for the store of value assets such as bitcoin and gold, although recently investors have started to wonder whether the Federal Reserve might unwind stimulus as the economy reheats. That might set up the cryptocurrency’s price for a fall because the 12-year-old digital asset is still seen as a risky investment, similar to stocks. 

However, the survey shows "long bitcoin," or a bullish bet on the cryptocurrency, is the second-most crowded trade in the financial market. A crowded trade is one that is extremely popular, but also so widely held that a market pullback could trigger a violent unwind as traders scramble to exit positions.

Fund managers saw "long tech" as the the most-crowded trade for the second-straight month, while betting against the U.S. dollar was the fourth-most crowded.
Fund managers saw "long tech" as the the most-crowded trade for the second-straight month, while betting against the U.S. dollar was the fourth-most crowded.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.