For the most part, traditional hedge funds have avoided Bitcoin like it’s the black plague reborn. The few individuals in that community that have switched gears to cryptocurrency have been laughed at.
Mike Novogratz, a former partner at Fortress Financial and Goldman Sachs, has told hosts of podcasts that when he took the plunge in around 2013, his peers thought he was crazy. Travis Kling, too, was subject to a similar experience, with his co-workers at Point 72 finding his decision to jump ship to crypto quite confusing.
The disrespect that most Wall Streeters have towards cryptocurrency seemingly stems from the hearsay pushed by some of the world’s most powerful economists, investors, and politicians, most of which hate Bitcoin.
Warren Buffett, for instance, has claimed that Bitcoin is “rat poison” and has not much more inherent value than his coat button. Donald Trump believes the same, calling the cryptocurrency “thin air”.
Sentiment seems to be slowly shifting in crypto’s favor, however, especially traditional assets are expected to underperform due to macroeconomic and geopolitical risks.
Bitcoin, Hedge Funds’ Next Frontier
Speaking to CNBC, Don Steinbrugge, the chief executive of Agecroft Partners — a hedge fund and institutional investment consultancy firm — made it clear that there is an institutional case to own Bitcoin.
cnbc: bitcoin will become a part of many hedge funds' portfolios: ceo https://t.co/XDBzNOoIh2
— crypto retreat (@cryptoretreat) August 6, 2019
His first point was that BTC has had a “great run” so far, seemingly referring to its decade-long run and reputation of long-term price appreciation, impenetrable security, and reliable transactions. Steinbrugge added that he is a big fan of the technology of the Bitcoin blockchain.
He didn’t elaborate on what part of the protocol he likes, but BTC and its ilk have been proven to facilitate transactions that are cheaper, faster, and more secure than their centralized counterparts made through the fiat system.
Steinbrugge went on to laud Bitcoin for its potential and actual use case to stave off inflationary risks, with BTC being an inherently deflationary asset due to its 21 million supply cap and ability to be lost. Indeed, Bitcoin has seen mass use in Venezuela, a nation that has seen rampant inflation of its sovereign currency, the Bolivar.
The chief executive did admit that as it stands, Bitcoin is “expensive” by traditional measures and is hard to value. But, he concluded by saying that the cryptocurrency is here for the long term and that hedge funds are likely to eventually include BTC in their portfolios.
His comment came hot on the heels of similar rhetoric pushed by Anthony Pompliano, co-founder of Morgan Creek Digital Assets.
On Twitter and through interviews with CNBC and other outlets, the industry investor has stated that with hedge funds and pensions underperforming their benchmarks, it may be “irresponsible” for these funds not to own Bitcoin to improve their portfolios potential returns.
Pompliano has actually taken this narrative a bit further, explaining that soon, central banks may soon begin to acquire Bitcoin. The staunch cryptocurrency bull, known for his controversial catchphrase “Long Bitcoin, Short the Bankers”, claims that BTC’s asymmetric upside makes it a perfect bet for central banks in a tumultuous world.
It Just Makes Sense
This may not be an unwise tidbit of advice.
In a recent report, Binance Research, the market research and analysis branch of the large cryptocurrency exchange that shares its name, proved that including BTC in “traditional multi-asset class portfolios provides overall better risk-return profiles.”
Binance noted that while Bitcoin has been deemed an extremely volatile asset, with regular 80% downturns and flash crashes, it has had some of the largest price appreciations in modern history, in short time frames no less.
It was added that with low spreads, high volumes, and clear signs of price efficiency — all signs of a highly liquid market — Bitcoin provides a multitude of “diversification properties”, even for investors in the traditional realm:
“Binance Research simulated different Bitcoin allocation techniques in existing diversified multi-asset portfolios. All simulated portfolios which included Bitcoinexhibited overall better risk-return profiles than traditional multi-asset class portfolios.”