by Joseph Young
Large-scale hedge funds in the traditional finance sector are beginning to enter the bitcoin and cryptocurrency markets.
This week, former major US-based investment management firm Legg Mason chairman and principal fund manager Bill Miller, who oversaw $728 billion in assets during his stay at the company, revealed that he had invested half of his personal hedge fund MVP1’s assets in bitcoin.
In an interview with CNBC, Miller disclosed that MVP1 has $2.2 billion in assets primarily for high profile investors, individuals, and mutual funds. 50 percent of MVP1’s $2.2 billion is invested in bitcoin by Miller’s hedge fund.
“What we’re studying is ways in which we can mitigate risk to the overall fund and the portfolio. It won’t be 50 percent of the fund for that much longer, which does not mean necessarily that we’re going to be selling it [bitcoin],” said Miller, adding that he is not interested in other cryptocurrencies. “Most of those cryptocurrencies, if monetary history is any guide, will be worthless.”
Last month, another multi-billion dollar hedge fund Man Group revealed that it will include bitcoin into its “investment universe” upon the launch of CME’s bitcoin futures exchange. Man Group CEO Luke Ellis said:
“Conceptually digital currencies are an interesting thing. It’s not part of our investment universe today – it could be. If there is a CME future on bitcoin, it would be.”
Ellis noted that the difference between a digital currency like bitcoin and a traditional currency is that the former has no central entity backing the asset. However, he emphasized that the lack of a central authority supporting it does not invalidate cryptocurrencies.
“There is a big difference between a digital currency and a traditional currency… Traditional ones are supported by governments who have armies and taxmen that can make people follow their rules, and digital ones don‘t. But that doesn’t invalidate digital currencies at all,” Ellis said, sharing a similar sentiment as the researchers at Bank of Finland, which previously described bitcoin as something that “cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts.”
Hedge funds from the traditional finance industry have started to invest in bitcoin and the cryptocurrency market because the recent listing of bitcoin futures by Cboe and CME, and the strong performance of the cryptocurrencies have further validated, legitimized, and matured the global cryptocurrency market.
At the time of reporting, the cryptocurrency market valuation remains above $400 billion and is rapidly moving towards the $1 trillion level. The daily trading volume of the cryptocurrency market is also larger than that of the New York Stock Exchange, the largest stock market in the world. Currently, the cryptocurrency market and its exchanges are trading nearly $44 billion on a daily basis.
It has become increasingly challenging and difficult for hedge funds, investment firms, and banks to dismiss bitcoin as a result. Even JPMorgan and Goldman Sachs, two of the biggest investment banks in the global finance market, have expressed their optimism toward bitcoin futures and shared their intention to clear bitcoin futures on behalf of their customers by the end of 2018. On December 21, it was revealed that Goldman Sachs intends to set up a trading desk for bitcoin, according to sources knowledgeable on the matter.