Advisors and investors turn bearish on volatile Bitcoin

Bitcoin maybe the world’s most popular cryptocurrency but it’s been busy proving the adage that what goes up must come down.

It’s a view shared by Canadian investors and advisors, according to the third-quarter 2021 Advisor and Investor Sentiment Surveys from Horizons ETFs, which revealed bullish sentiment on oil but bearish expectations on Bitcoin.

Each quarter, the ETF provider conducts a survey that asks outlooks on expected returns for distinct asset classes, expectations expressed in terms of bullish, bearish, or neutral sentiment.

Thematic asset classes and sectors: Bitcoin, psychedelics and marijuana

Bitcoin has seen an erosion of sentiment this quarter, with both advisors and investors ranking it the most bearish asset. Following a -41.34% decline in the price of Bitcoin during Q2 2021 – the worst performance of any of the Q3 Surveys’ measured asset classes – investors shifted their position from bullish to bearish, adding 15 percentage points to their negative sentiment, for a total of 50% bearish overall.

The burgeoning psychedelics sector, as represented by the North American Psychedelics Index, saw muted performance during Q2 2021, with a -3.93% return. However, investors remained confident on the psychoactive asset class at 46% bullishness, while advisors are evenly split between neutral and bearish sentiment at 34% each.

While still positive on a year-to-date basis, the Canadian marijuana industry, as represented by the North American Marijuana Index, saw a -11.40% return during Q2 2020. Despite a 20 percentage point drop in positive sentiment, investors continued to keep the faith in the budding sector with 46% bullishness overall. Advisors moved from a previously bullish position to a 35% neutral majority.

“With Bitcoin, we’ve seen that what goes up quickly, can just as easily come down quickly,” said Mark Noble, Executive Vice President, ETF Strategy at Horizons ETFs. “The meteoric growth of Bitcoin has attracted countless new investors to the cryptocurrency space in the last 12 months. Returns of the asset class have cooled amid double-digit losses over the past several months and increasing global restrictions, including from China, on the mining and transaction of cryptocurrencies.”

Canadian equities and the dollar

Canadian equities, as represented by the S&P/TSX 60 Index, continued their first-quarter strength into Q2 2021, posting a +8.23% gain. Despite the strong performance, Canadian investors and advisors decreased their bullishness on domestic equities, while remaining bullish overall. Advisors decreased their bullishness 14 percentage points to 59%, while investors reduced theirs by 7 percentage points, to 53%.

Canadian Energy, as represented by the S&P/TSX Capped Energy Index, was Q2 2021’s best performing equity index, as measured by the Q3 Surveys, with a 19.99% return. In response, both advisors and investors ranked Canadian Energy as their most bullish asset class. Advisors added 5 percentage points to bring their total bullishness to 64% overall, while investors added 11 percentage points of positive sentiment, for a total bullishness of 62% overall. Canadian Financials, as represented by the S&P/TSX Capped Financials Index, was also a strong performer in Q2 2021, returning 7.38% during the period. While remaining bullish overall, both surveyed groups tempered their positive sentiment, with advisors reducing their bullishness 10 percentage points to 63%, and investors retracting 6 percentage points to stand at 53% bullishness on financials, overall.

“Now that global travel opportunities and transport of goods globally are increasing, energy demand is on the rise, which has resulted in strong performance for Canada’s energy sector,” said Noble. “On top of the strong tailwinds with energy prices rising, Canada has also faced some of the longest and most stringent restrictions in the developed world. As the country now re-opens with a high vaccination rate relative to the rest of the world, foreign investors seem to be increasingly favouring Canada versus other developed markets, as highlighted by the relative outperformance of Canadian equities during the last quarter.”

U.S. and International Equities

U.S. Equities maintained positive momentum throughout Q2 2020, with the S&P 500 Index posting an +8.17% gain, while the NASDAQ-100 Index soared +11.18% higher. While still overwhelmingly bullish on both indices, investors responded to the robust performance by reducing their outlook on the S&P 500 by 5 percentage points to 56% bullishness overall but increased their bullish stake on the NASDAQ-100 equally by 5 percentage points, for 53% bullishness overall. Advisors also backslid on their S&P 500 outlook, taking back 9 percentage points of positive sentiment to sit at 56% bullishness overall.

Commodities

The best performing asset class in Q2 2020 was Natural Gas Futures, with a +39.95% return in the quarter. Despite typically lower seasonal demand during the summer, both advisors and investors upgraded their bullishness on the commodity, with advisors moving from neutral to bullish after increasing their positive sentiment by 9 percentage points to 46% bullishness overall. Investors were even more enthused, increasing their bullishness by 12 percentage points to 51% bullishness overall.

Crude Oil Futures, buoyed by the continued economic recovery, posted the second-best return of any of the measured asset classes in the Q3 Surveys, with a return of +24.19% in Q2 2020. Advisors added 5 points of positive sentiment to be 57% bullish overall, and investors adding 8 percentage points, for a total of 61% bullishness overall.

“Over the last six months, commodities have proven the adage they are one of the best solutions in an inflationary environment. The added tailwinds of a global reopening following mass vaccinations against the COVID-19 environment add further fuel to their ascent,” said Noble.

Defensive Asset Classes: Gold, Silver, and Fixed Income

While volatility in the “digital gold” of Bitcoin during Q2 2020 crystalized losses for some investors, the traditional physical stores of value of gold and silver provided some lustre for investors. Gold Bullion returned +3.65% during Q2 2020, while Silver Bullion offered +7% over the same period. Advisors warmed on gold and silver for the most part, while investors didn’t see the same luster in the precious metals.

Advisor sentiment on gold becoming bullish at 43% overall, following an 8 percentage point increase, while investors withdrew a single percentage point of positive sentiment but remaining 43% bullish as well, overall. On Silver Bullion, investors retracted 8 percentage points of bullish sentiment to hold firm at 45% overall, while advisors added 4 percentage points of bullishness to reach 43%.