- The TLT ETF has crashed hard from its all-time high as risks rise.
- The JPST fund has jumped as interest rates continued rising.
- Bitcoin price, on the other hand, has been one of the top-performing assets.
The iShares 20+ Year Treasury Bond ETF (TLT) has bounced back in the past few weeks as bond yields have retreated. The TLT ETF jumped to a high of $89.54, which was about 9% above the lowest point this year.
It has crashed by over 18% from the lowest point this year and by over 47% from the highest point on record. It is sitting near the lowest level since 2014. This article will compare between TLT and Bitcoin.
The risk of investing in TLT ETF
The iShares 20+ Year Treasury Bond ETF is a fund that invests in long-term US government bonds. It is the most popular fund of the sort and has over $42 billion in assets and a dividend yield of 3.6%.
Investing in the TLT ETF is a bet that the American government will continue paying back its debts for a long time. This is possible since the US has a Triple A bond rating by Moody’s and a leg lower by Fitch and S&P Global.
However, the reality is that the US faces substantial risks in the coming years as interest rates remain high. In its latest rate decision, the Federal Reserve decided to leave interest rates unchanged between 5.25% and 5.50%. Jerome Powell also left the door wide open for more rate hikes in the future.
The biggest risk for the TLT ETF is that the American debt is surging at the fastest pace on record. The government now owes over $33.7 trillion in total debt. It has jumped by over $700 billion in the past few weeks. The Treasury Department has also committed to borrow $1 trillion later this year.
For a long time, the total amount of debt meant nothing since interest rates were low. Now, the Treasury is spending over $800 billion in interest payments. Higher rates and debt means that the US will need to spend more on repayments.
Worse, social security funds will run out in the nex few years. The end result is a situation where the government will have little room to implement projects. Think about this, if the total debt is now $33.7 trillion, where will it be in the next ten years?
Notably, Democrats and Republicans are not willing to do the right thing and handle the crisis. In this case, the solution would be to slash spending and boost taxes and hope that the gap will narrow.
Therefore, all this makes it quite difficult to recommend investing in the TLT ETF. Instead, I recommend investing in short-term government bond ETFs like the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) and the JPMorgan Ultra-Short Income ETF (JPST). The latter two are much better because of the current high-interest rates and the fact that the US is not at risk of defaulting on its short-term debt.
Bitcoin vs TLT ETF vs JPST ETF
The case for Bitcoin
Therefore, in this case, we have seen that the TLT ETF is a hig risk fund to invest in. The JPST, on the other hand, is a more palatable fund that has consistently provided returns to investors. It has a 30-day yield of over 5.60%.
Bitcoin, on the other hand, is a much better investment, for three main reasons. First, historically, the coin has had a stronger performance than bonds and stocks. It has moved from near zero in 2009 to over $37,000. As such, people who have held BTC for this time have seen much better returns even though it pays no dividends
Read more: How Bitcoin works..
Second, Bitcoin has proved itself to be a real asset, which explains why companies like Blackrock, Franklin Templeton, and Invesco have applied for a spot ETF. It has survived all the past black swan events like the Covid-19 pandemic, the collapse of companies like Terra and FTX. Most importantly, it is doing well even as interest rates jumped to the highest point in over 2 decades.
Third, and most importantly, Bitcoin is a finite resource. It has a supply limit of 21 million, meaning that it cannot be manipulated. In terms of bonds, however, they are infinite resources since the Fed can always print the cash. Therefore, I recommend investing in Bitcoin than ETFs like VGLT, TLT, and JPST.
