While the world changes around us, human nature remains the same.

Unusual events lead to fear and uncertainty. But that fear and uncertainty also leads to predictable outcomes.

In the week after the 9/11 terrorist attacks, investors sold $1.4 trillion worth of stocks. A lot of consumers stopped flying. Airline traffic dropped by over 30%. People just stopped spending like before. And cash savings hit record levels.

That’s human nature. In times of uncertainty, we hunker down and prepare for the worst.

One of the ways this preparation manifests itself is through savings. In other words, cash on the sidelines.

Time and time again we have seen cash build up during uncertain times. In fact, we’re living in one of those times again.

The question is, where is it going? And can we profit? I’ll tell you below.

Nearly $5 Trillion on the Sidelines

In the first quarter of 2020, COVID-19 took the world by storm. The first global pandemic in over 100 years, it affected every corner of the planet.

Naturally, this created elevated levels of fear and uncertainty like we saw during the Great Recession.

And once again, cash on the sidelines is at record levels… something clearly visible by looking at money market funds.

A money market fund is a mutual fund that invests solely in cash and cash equivalents, such as short-term Treasury bills.

Money market funds are used because they are liquid and safe. They also generate interest. The best money market funds today pay around 0.5%.

So it’s no surprise money market funds rise during times of fear and uncertainty. And that’s exactly what we’re seeing today.

Check out the chart below, which shows total financial assets in money market funds.


As you can see above, cash on the sidelines is at record levels since the outbreak of the pandemic last year.

But as we mentioned above, where is it going? And can we profit?

Where’s The Money Going?

Time and time again we see that once the fear and uncertainty pass, the money gets put to work.

That’s important for investors. Those that sold out of fear will be buying again.

We saw it manifest after the Great Recession passed. Investors piled back into assets such as gold, real estate, and stocks.

In the two years after cash balances peaked, gold, real estate, and stocks went up 60.3%, 51.9%, and 39.4% respectively. That’s an average annual gain of over 25%.

We think this will play out similarly this time around. Money moved to the sidelines will funnel back into assets.

But this time around there’s one key difference: cryptocurrencies.

You Can’t Ignore This Asset Class Anymore

You simply can’t avoid cryptocurrencies anymore.

Bitcoin recently took out its all-time high from 2017. That invalidated any theses that bitcoin was just a bubble or fad.

And major players continue to legitimize the industry. In just the past few weeks:

  • SkyBridge Capital, the $9.2 billion asset manager, launched a bitcoin fund.
  • Microstrategy added over 70,000 BTC to its treasury – worth over $2.8 billion.
  • Insurer MassMutual bought $100 million worth of bitcoin.
  • The CME, the world’s largest derivatives exchange, launched Ethereum futures.
  • Crypto exchange Coinbase announced it would go public in 2021 at a reported valuation of $28 billion (and now over $70 billion with the recent bitcoin rally.) This is huge because the red-hot IPO market will be converging with one of the hottest investing areas right now – cryptocurrencies.

It’s pretty clear cryptocurrencies are on the way to rapid adoption and usage.

On top of that, bitcoin has a great track record compared to other popular assets. Just take a look at the table below.

Source: The Pomp Letter

Bottom line, investors looking to put money to work will have a hard time ignoring bitcoin and cryptocurrencies.


Greg Wilson
Analyst, Palm Beach Daily