Ruffer: ‘Bitcoin at foothills of long trend of institutional adoption’

Ruffer is backing bitcoin as a long-term hold, saying the digital currency is only in the early stages of being adopted as a mainstream asset by institutional investors.

The fund house has made more than £500m from buying into bitcoin in November, with the cryptocurrency now comprising 3% of its portfolios.

In a trading update for the listed Ruffer Investment Company today, the firm said its direct position in bitcoin is up 90% and its holdings in two proxy equities, Microstrategy and Galaxy Digital, have both more than doubled.

Ruffer caught the eye in December when it told investors it had bought a 2% groupwide position in the cryptocurrency, equivalent to a £550m stake, as an uncorrelated inflation hedge in November.

‘Our rationale has been well publicised but briefly, we have a history of using unconventional protections in our portfolio. This is another example, a small allocation to an idiosyncratic asset class which we think brings something significantly different to the portfolio,’ Ruffer said.

‘Due to zero interest rates the investment world is desperate for new safe-havens and uncorrelated assets. We think we are relatively early to this, at the foothills of a long trend of institutional adoption and financialisation of bitcoin.’

Bitcoin was one of the top-performing asset classes last year, rising 300%. It has continued climbing through January, topping $40,000, more than doubling its 2017 all-time high, before falling back to around $36,000 currently.

The digital currency has remained very much on the fringes of mainstream adoption as an asset class, however. Institutional backing has long been seen as the holy grail for bitcoin advocates, but Goldman Sachs’ head of commodities research \\\\ believes this is still a long way off.

He estimated earlier this month that of the more than $600bn invested in bitcoin, ‘roughly 1% of it is institutional money’.

JP Morgan said that bitcoin’s limited supply and positioning as an alternative to gold could see its price rise above $146,000 long-term, but the crypto’s volatility would have to reduce for this to be realistic.

The bank’s base case is that bitcoin’s price is already ‘challenging’, but it said ‘speculative mania’ could push it up between $50,000-$100,000 in the short-term.

This perceived mania prompted the Financial Conduct Authority to warn retail investors last week that they risk losing all of their money if they buy into crypto products. The regulator had already banned consumers from trading bitcoin options earlier this month.

Ruffer accepts there are risks to the nascent asset class and no guarantees that bitcoin will ever become mainstream for institutional investors. However, the company feels there are growing signs of its increased adoption and the impact on its price would be significant.

‘Think of bitcoin’s bad reputation as a risk premium – as we move through the process of normalisation, regulation, and institutionalisation, the compression of this premium can have a dramatic effect on the price,’ Ruffer said.

‘If we are wrong, bitcoin will return to the shadows and we will lose money – this explains why we have kept the position size small but meaningful.’




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