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Fund managers question how much institutional investors are responsible for the significant rise in the price of bitcoin, claiming that cryptocurrency investment is limited to a handful of hedge funds and a select cohort of others professional investors.
The comments come amid reports of growing institutional interest in hedge funds trying to grab some of the stock.
Adam Grimsley, chief investment officer in the private markets team at Aberdeen Standard Investments, said that the idea that institutional investors are driving the price of Bitcoin dramatically is “a bit of a delusion.”
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“This account of increasing institutional investor exposure is probably correct, but I don’t think it falls far short of some of the anecdotal evidence that has been given by some people,” Grimsley says.
“Only a fraction of the market will be interested in this. It’s still a very small, limited section of institutional investors investing at this stage. “
Grimsley joined Aberdeen Standard Investments in January 2020 after establishing Prime Factor Capital in 2018 – the UK’s first regulated crypto hedge fund.
Hedge funds were among the biggest winners in the bitcoin rally, which saw its value rise by over 300% last year. Bitcoin’s value crossed the $ 34,000 mark on January 3 before its rally lost momentum. It is now trading at around $ 31,000.
Billionaire hedge fund manager Paul Tudor Jones is one of the big investors known to have allocated money to bitcoin, while hedge fund SkyBridge Capital set up by Anthony Scaramucci has filed a request with the US regulator to launch a bitcoin fund.
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The Prime Factor fund, which Grimsley set up with a former BlackRock colleague and another founder, aimed to manage more than $ 100 million. However, it failed to secure traction assets and closed its doors last year.
Grimsley wondered if there was a strong appetite among institutional investors for bitcoin in the current market environment. Cryptocurrency has been hailed as both a speculative and safe haven asset.
“A safe haven asset will protect against inflation. This is a strong argument for the future, but for now it is essentially a speculative asset class, ”he said.
“Institutional investors want either speculative assets, which have strong capital growth, or safe haven assets. For Bitcoin to be both seems contradictory. “
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Grimsley said Aberdeen Standard Investments was not interested in allocating money to bitcoin.
“It’s an exciting asset class that is growing, and the infrastructure around it can have side effects on more common asset classes. But that’s about it, ”said Grimsley.
Federated Hermes, the city’s $ 615 billion fund manager, is another longtime manager who has made no allocation to Bitcoin.
“Given some of the more extreme price swings, I’d be surprised if it’s the institutional players that stack up,” says Eoin Murray, chief investment officer at Federated Hermes.
Others claim that institutional demand for access to bitcoin is increasing its value.
Many institutional investors sat on the sidelines when bitcoin experienced its first spectacular rally in 2017 – the cryptocurrency surged to $ 19,783 before collapsing to as low as $ 3,248 at the end of 2018.
Nikolaos Panigirtzoglou, multi-asset research analyst at JPMorgan, said Financial News in november, there was “a greater urgency on the part of institutional investors not to miss” the gains of bitcoin.
This point of view is shared elsewhere. Fidelity Digital Assets, which sells custody and trading tools to institutional and corporate investors, has family offices, macro hedge funds and endowments among its clients.
“We have noticed a phenomenal increase in interest. When we think back to 2017, the institutional infrastructure just wasn’t there. That has changed, ”said Chris Tyrer, Head of Fidelity’s Digital Asset Business in Europe.
“People are looking for alternative investment strategies. Bitcoin is both a hedge for fiat currency degradation, but it is also 2.0 gold. If we continue to see this level of adoption, it will behave very much like an early stage tech venture capital bet. It presents a compelling investment story for many of the institutional investors we speak to. “
However, Tyrer acknowledges that institutional investor allocations to Bitcoin do not represent huge portions of investment portfolios.
“It’s about sizing the position,” he says. “We don’t see institutional investors come in and invest 20% of a portfolio. But most are able to tolerate some short-term volatility within a diversified portfolio. “
To contact the author of this story with comments or news, email David Ricketts
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