Bitcoin, which is up 60% for the year against the US dollar, is still early in the adoption game with lots of upside potential as such a number of “very large traditional hedge funds are active in crypto” though doesn’t talk about it.
Bitcoin again came close to hitting $12,000 yesterday but failed to do so and currently trades around $11,785.
While the digital asset has been struggling to reach this level for a fortnight now, bitcoin’s gains since its March lows has helped crypto-focused hedge funds to navigate choppy markets better than their peers focused on bonds and stocks.
In these past seven months, crypto fund managers returned over 50% compared to low single-digit gains generated across traditional classes of asset. Last year, crypto hedge funds gained only 16%, but even then, it outperformed mainstream hedge funds, which were up 9%.
This rally is the result of bitcoin surging 60% for the year against the US dollar and up 215% since March sell-off.
A Lot of Upside Potential
Currently, everything from stocks to gold is enjoying a rally thanks to government policies. This is why even Warren Buffett has pivoted to gold — he has cut down his bank holdings and sold all the shares in Goldman with gold miner Barrick Gold being the only addition in Q2.
“Warren Buffett said he would never invest in gold. He did invest in gold miners because it made sense. Warren also said that he would never invest in Bitcoin. I am waiting for the day when Warren changes his mind on Bitcoin,” said Gabor Gurbacs, digital asset strategist at VanEck.
Buffet trimming bank exposure and adding to gold miners (as someone who has never liked gold) is very interesting.
To be fair, he may still hate gold, but think others will continue buying it and thus Barrick equity will do quite well. https://t.co/M5pTVUERmk
— Ceteris Paribus (@ceterispar1bus) August 14, 2020
But according to veteran Wall Street fund manager Michael Novogratz, bitcoin is a better bet than gold.
Novogratz, who has about 25% of his net worth in BTC, says the digital asset is “harder to buy” than the traditional haven and, as such, a more worthy investment.
“It’s only got a $20 billion market cap, while gold is over $10 trillion,” he said, adding, “so it’s got a long way to go to catch gold in terms of just adoption.”
While Novogratz doesn’t recommend beginners to put in more than 1-2% of their money into the digital currency, London-based digital asset management firm CoinShare recommend investor to allocate 4% of their portfolio to the cryptocurrency because it is “in its growth phase (and) behaves like a tech stock.”
Increased Interest in Bitcoin
The prospect of strong returns over longer periods continues to draw investors, according to Michael Sonnenshein, managing director at Grayscale Investments, the $5.7 billion AUM crypto fund, which attracted $900 million of inflows in 2020, three times the entire 2019.
“Overwhelmingly, the inflows are coming from major hedge funds,” said Mr. Sonnenshein. “Conversations are being driven by zero interest rates, which is eroding the value of fiat currencies.”
The current environment of collapsing interest rates is also turning out to be good for Bitcoin with high stock price keeping pressure on dividend yields.
“There is no yield on crypto, but look at it this way: the floor in bitcoin is zero whereas in many traditional markets we now have negative rates and yields,” said Max Boonen, co-founder of crypto trading company B2C2.
The Bitcoin market has also been maturing; not only the volatility fell lower than stock markets this year, but price discrepancies on different exchanges that created arbitrage opportunities have faded.
In the past two months, Boonen, who is a former interest rates trader at Goldman Sachs, has been even approached by “blue-chip” names to run a crypto-dedicated for them.
“A number of very large traditional hedge funds are active in crypto, even if they don’t necessarily talk about it,” said Michael Bucella, a partner at BlockTower Capital.