Retail investors love bitcoin. Institutional investing heavyweights aren’t so sure.
Bank of America’s global survey of big fund managers named bitcoin as the most crowded trade. Analysts at JPMorgan warned that investors could begin to flee bitcoin if it fails to break out above its January high of $40,000. The cryptocurrency traded at around $32,000 on 26 January.
And Barclays Private Bank labelled bitcoin “almost uninvestable”, claiming the cryptocurrency is too volatile and provides little diversification benefits for large investors.
But bitcoin still has a loyal support base. New York-based digital currency asset manager Grayscale said investors ploughed $2.8bn into its Bitcoin Trust during the final three months of 2020.
Here’s a rundown of who has said what since its rally began in October.
Hedge fund manager Paul Tudor Jones told CNBC in October 2020 that he had a “small single-digit investment” in bitcoin
“Bitcoin has a lot of the characteristics of being an early investor in a tech company.
“What I learned is that bitcoin has this enormous contingent of really smart, sophisticated people who believe in it. When I think of the menu of inflation hedges, the thing that bitcoin has is a group who are dedicated to seeing bitcoin succeed and it becoming commonplace store of value.”
Veteran Wall Street fund manager Bill Miller noted bitcoin’s outperformance compared to other major asset classes over the past one, three, five and 10 years
“Its market capitalisation is greater than JPMorgan and greater than Berkshire Hathaway and yet it is still very early in its adoption cycle,” Miller wrote in a client letter on 5 January.
“Bitcoin at this stage is best thought of as digital gold yet has many advantages over the yellow metal. If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into bitcoin instead of cash, then the current relative trickle into bitcoin would become a torrent.
“Warren Buffett famously called bitcoin ‘rat poison’. He may well be right. Bitcoin could be rat poison, and the rat could be cash.”
Chris Tyrer, head of Fidelity’s digital assets business in Europe, told Financial News institutional interest in bitcoin has been growing
“People are looking for alternative investment strategies. Bitcoin is both a hedge for fiat currency debasement but it is also gold 2.0,” he said. “If we continue to see this level of adoption, it will behave very much like an early-stage technology venture bet. It has a compelling investment narrative to a lot of the institutional investors we speak to.”
Gerald Moser, chief market strategist at Barclays Private Bank, doubted investors would rush to hold bitcoin because of its highly volatile nature
“While it is nigh on impossible to forecast an expected return for bitcoin, its volatility makes the asset almost ‘uninvestable’ from a portfolio perspective,” Moser said.
“With spikes in volatility that are multiples of that typically experienced by risk assets such as equities or oil, many would probably throw the cryptocurrency out of any portfolio in a typical mean-variance optimisation.”
Adam Grimsley, an investment director within the private markets team at Aberdeen Standard Investments, questioned if the recent rally was being driven by strong institutional interest in bitcoin
“This narrative of institutional investors increasing exposure is probably correct, but I don’t think it is anywhere near some of the anecdotal evidence that has been given by some people,” he told FN.
“A safe haven asset will protect against inflation. It’s a strong argument in the future, but at the moment it is very much a speculative asset class.
“Institutional investors want either speculative assets, which have high capital growth, or safe haven assets. For bitcoin to be both seems contradictory.”
Mark Mobius, veteran emerging markets fund manager, is among some of the best-known sceptics.
“Trying to predict the price of bitcoin is a loser’s game since there is no way of knowing the supply being created,” he told FN.
“Speculation is based on no reliable information as far as I can ascertain, so it becomes a casino operation based on all sorts of rumours and speculation.”
Ray Dalio took to Twitter on 17 November to air his concerns about bitcoin.
“My problems with Bitcoin being an effective currency are simple…
“They are that:
1) Bitcoin is not very good as a medium of exchange because you can’t buy much with it (I presume that’s because it’s too volatile for most merchants to use, but correct me if I’m wrong).
“2) it’s not very good as a store-hold of wealth because it’s volatility is great and has little correlation with the prices of what I need to buy so owning it doesn’t protect my buying power, and,
“3) if it becomes successful enough to compete and be threatening enough to currencies that governments control, the governments will outlaw it and make it too dangerous to use.
“Also, unlike gold which is the third-highest reserve assets that central banks own, I can’t imagine central banks, big Institutional investors, businesses or multinational companies using it. If I’m wrong about these things I would love to be corrected.”
Former Goldman Sachs CEO Lloyd Blankfein urged caution
“You don’t know whether or not you’re paying the North Koreans or Al Qaeda or the Revolutionary Guard,” Blankfein told CNBC on 25 January. “If I were a regulator, I would be kind of hyperventilating at the success of it at the moment and I’d be arming myself to deal with it.”
And Bank of England governor Andrew Bailey says not yet
“Have we landed on what I would call the design, governance and arrangements for what I might call a lasting digital currency? No, I don’t think we’re there yet. I don’t think cryptocurrencies as originally formulated are it,” he said at the World Economic Forum, according to Reuters.
To contact the author of this story with feedback or news, email David Ricketts
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