by Jamie Holmes
Despite the Winklevoss bitcoin ETF’s disapproval, could an investment drive by one billionaire ignite a larger movement of money into cryptocurrrency. Michael Novogratz, estimated to be worth billions, stated at a Harvard Business School Club of New York forum on April 19:
“Ten percent of my net worth is in this space.”
Investment Opportunity of a Lifetime?
The cryptocurrency play was the “best investment of my life,” Novogratz said, whose exact wealth is not known but has appeared on the Forbes billionaire list in 2008 and is a former hedge fund manager for Fortress Investment Group. During his stint at Fortress, Novogratz stated he had put his personal wealth into bitcoin as early as October 2013, and the firm were looking at the cryptocurrency. It is no surprise that Novogratz picked up early on bitcoin, given that Fortress is a macro fund, focusing on macroeconomic fundamentals to make investment decisions.
Bitcoin, which demonstrates a decreasing supply of new bitcoins, has been such a stronger performer against fiat currencies because of a key macroeconomic fundamental; inflation. The bitcoin ecosystem enjoys progressively lower inflation levels as the block reward is reduced over time, whereas inflation for fiat currencies is determined by a variety of factors, including discretionary monetary policy, versus the fixed, rules-based policy of Bitcoin. Consequently, the price of bitcoin has broken many key psychological levels against the US dollar (as well as other major currencies); the $1 handle, the $10 level as well as the $1,000 mark more recently.
In 2013, Novogratz justified his long position and said that he sees bitcoin growing as a payment system, especially in developing nations. Later in 2015, Novogratz left Fortress. The macro fund suffered a setback in 2015, losing as much as 17 percent on the year.
Diversification is Imperative for Crypto Investors
At the Harvard Business School Club event, Novogratz told of how people laughed at him when he invested in bitcoin in 2013. He also predicted that the cryptocurrency will head to $2,000 next. But the billionaire is not all-in on bitcoin and suggested to diversify, where you should put money into many cryptocurrencies. For instance, Novogratz also invested in ether early on, when it was less than $1.
In the first quarter of 2017, the combined market capitalization of all cryptocurrencies grew from $17.5 billion to $25.2 billion. Decred and Golem were notable outperformers, with percentage value growth in the thousands for Decred (2,410.64 percent). Other altcoins performed strongly, such as ether, Dash, XEM, and Stratis, all boasted growth rates in excess of 100 percent.
Furthermore, the combined altcoin market capitalization saw a more than proportional gain than the entire cryptocurrency market in Q1, growing from around $2 billion to $8.1 billion.
Will Novogratz’s disclosure invalidate concerns about bitcoin gaining acceptance following the ETF disapproval? People can still invest in cryptocurrencies, but they will have to overcome a knowledge barrier. With potentially astronomical gains, taking the time to seek this knowledge is likely to be worth your while. Perhaps with the billionaire moving his wealth into cryptocurrency, others will pay attention and Novogratz’s shift could be a tipping point for the flow of money into this emerging technology, which should precipitate further interest from investors in the future.