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Warren Buffett Pivots to US Treasuries – Bad Omen for Bitcoin Price?

Warren Buffett has put most of Berkshire Hathaway’s cash in short-term US Treasuries, now that they offer up to 3.27% yield. But while the news isn’t directly related to Bitcoin (BTC), it may still be a clue to its price’s downside potential in the near term.

Berkshire Hathaway seeks safety in Treasuries

Treasury bills, or treasury bills, are US government-backed securities that mature in less than a year. Investors prefer them to money market funds and certificates of deposit because of their tax advantages.

Related: Stablecoin Issuers Hold More US Debt Than Berkshire Hathaway: Report

Berkshire Net Cash position was $105 billion as of June 30, of which $75 billion, or 60%, was held in Treasury bills, up from $58.53 billion at the start of 2022 of its total cash reserves of $144 billion.

This move is likely a response to the massive rise in bond yields since August 2021 following the The Federal Reserve’s hawkish policies were aimed at curbing inflation, which stood at 8.4% in July.

For example, the three-month U.S. Treasury note returned 2.8% on August 22, compared to a near-zero return a year ago. Similarly, the yield on one-year US Treasuries rose from zero to 3.35% over the same period.

US 3-month and 1-year bond yield versus BTC/USD daily chart. Source: Trading View

Meanwhile, non-performing assets like gold and Bitcoin have fallen around 2.5% and 57%, respectively, since August 2021. The benchmark US stock market S&P 500 has also seen a decline , losing almost 7.5% over the same period.

Related: BTC Will Lose $21,000 Despite Exiting Miner Surrender? 5 things to know about Bitcoin this week

Such a difference in performance presents T-bills as an ultra-safe alternative for investors to gold, Bitcoin, and stocks. Buffett’s Treasuries strategy suggests the same thing, namely a bet on more downside for near-term risky assets — especially as the Fed braces for further rate hikes.

“Buffett is a value investor, so he won’t be allocating much when stock markets are as overvalued as they have been for the past five years,” said Charles Edwards, founder of the quantitative crypto fund. Capriole Investments, at Cointelegraph.

Meanwhile, Andrew Bary, associate editor at Barron’s, pointed to the market’s potential to follow Buffett’s strategy, saying:

“Individual investors may want to consider following Buffett’s lead now that they are yielding up to 3%.”

Bitcoin: safe haven or risk?

Positive-yielding debt risks dampen demand for other potential safe havens, including Bitcoin. In other words, increasingly risk-averse investors might opt ​​for assets that offer fixed returns rather than those that don’t.

The performance of bitcoin-focused investment funds in August supports this argument, with capital outflows for three consecutive weeks, including an outflow of $15.3 million in the week ending August 19.

Overall, these funds have lost $44.7 million on a monthly basis, according to CoinShares weekly report. In total, digital asset investment products, including BTC, saw monthly outflows totaling $22.2 million.

Flow per asset. Source: CoinShares

Does this mean that Bitcoin will continue to lose its luster against positive yielding US government debt? Edwards disagrees.

“Allocation to Treasuries and other low-yielding cash products is really a decision that needs to be made on a case-by-case basis depending on an individual’s goals and risk appetite,” said he explained, adding:

“In the short term, sometimes it makes sense to hedge against Bitcoin volatility with cash, the best being the US dollar. But in the long term, I think all fiat currencies tend towards zero against Bitcoin.

Edwards also pointed out that Buffett’s long-term strategy remains largely risk-driven. In particular, Berkshire deployed 34% of its cash to buy stocks in May, and more than 70% of its portfolio is still in risky assets.

“Looking at Buffett’s 75% risk allocation and knowing that Bitcoin has been the best performing asset of any asset class over the past decade, with the highest risk-adjusted returns, I know where I would put my money,” he added.

Buffett’s portfolio, however, will likely continue to shun direct BTC investments, as the “Oracle of Omaha” remains a fierce critic. In February 2020, he said he “creates nothing”, adding:

“I don’t own any cryptocurrency. I never will. […] You can’t do anything with it except sell it to someone else.

Earlier this year, however, Buffett’s Berkshire Hathaway increased its exposure to a Bitcoin-friendly neobank while trimming its stake in Visa and Mastercard.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.