Hedge Funds Moving Towards Bitcoin?
There are unconfirmed news that a large number of fund managers are planning to launch hedge funds with crypto currencies. Though traditional hedge funds managers have kept them away from crypto space, many risk taking new generation fund managers have been making heavy profits for their clients due to surge in Bitcoin price. This is evident from the fact that average hedge funds returns was just 3.5% last year compared to the 180% gain of Bitcoin hedge funds.
What makes traditional fund managers scary about Bitcoin?
There are basically three reasons for hedge fund’s reluctance to invest in Bitcoin:
- Extreme volatility
- Chance for getting hacked or stolen
- Perception about the entire crypto space
The first point is still a valid concern for time tested fund managers but the other two factors are becoming less prominent now a days. Investors are more educated and there is a left out feeling among many wealthy funds. Bitcoin has been here for the last 8 years and investors community is realizing the fact that it is going to stay here, though the path would be with many trough and crest. This is why I believe any corrections coming to Bitcoin going forward will be short lived, in terms of both time and price.
Equivalent to Gold During Uncertain Times Ahead?
Gold is considered as a safe heaven during recessions, wars, oil diplomacy and so on. Recent geo-political tension between U.S. and North Korea is another example. But investors should notice the behavior of Bitcoin during this period. Bitcoin price broke the resistance of $4350 and moved to $4550 range.
I firmly believe that any future uncertainties in world economy will act as a catalyst for Bitcoin to move ahead and would probably change the perception of investors that gold is the only hedge mechanism available for them to hang on.
Why Institutional Investors are looking at Bitcoin?
- History shows that Bitcoin is not correlated with global risks: The last 10 year price history of Bitcoin is loosely coupled with global risks.
- Private funds are asked by wealthy clients to look at Bitcoin: The elite conservative wealthy investors are putting pressure on private fund managers to learn the technology behind Bitcoin and check the investment viability.
- Enough liquidity around Bitcoin and other crypto coins: The market cap of crypto space is growing exponentially and have crossed $150 billion. In first week of August, the largest options exchange in the U.S. – Chicago Board Options Exchange, announced a partnership with the Winklevoss twins’ Bitcoin exchange Gemini to integrate Bitcoin as one of its main assets.
“The debate has shifted from the legitimacy of the ‘fiat of the Internet’ to how fast new entrants are raising funds. Whether or not you believe in the merit of investing in cryptocurrencies (you know who you are) real dollars are at work here and warrant watching especially in light of the growing world of initial coin offerings (ICOs) and fundraising that now exceeds Internet Angel and Seed investing.”
~ Goldman Sachs
Market Cap Comparison of Gold and Bitcoin
The total value of gold (market cap in economic terms) is nearly 7 trillion USD. For Bitcoin to reach the market cap of gold, the price should be around $500,000 (half a million dollars). But lets be more realistic. If Gold holders divest 1% into Bitcoin, the price of one bitcoin would be approx $5,000, which almost near to today’s Bitcoin price.
In the next 10 years, there could be a paradigm shift of money from Gold to Bitcoin. Even if we reach a 10% divest of money, it would result the Bitcoin price to reach $50,000.
I believe huge amount of money is still waiting in side lines to get a decent entry into Bitcoin. But Bitcoin does not seem to be in a mood to do so as per the chart. My last articles for Litecoin and Ethereum have been fruitful enough to provide almost 100% returns. Happy investing!!
Disclosure: I am/we are long BITCOIN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.