Fund managers are casting doubt on the extent to which institutional investors are responsible for significantly driving up the price of Bitcoin, claiming investment in the cryptocurrency is limited to a handful of hedge funds and a select cohort of other professional investors.
The comments come amid reports of growing institutional interest from hedge funds that are trying to catch a piece of the action.
Adam Grimsley, an investment director within the private markets team at Aberdeen Standard Investments, said the idea that institutional investors were significantly driving up the price of Bitcoin is “a bit delusional”.
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“This narrative of institutional investors increasing exposure is probably correct, but I don’t think it is anywhere near some of the anecdotal evidence that has been given by some people,” says Grimsley.
“It is only a fraction of the market that will be interested in this. It’s still a very small, limited section of institutional investors investing at this point.”
Grimsley joined Aberdeen Standard Investments in January 2020 having set up Prime Factor Capital in 2018 – the UK’s first regulated crypto hedge fund.
Hedge funds have been some of the biggest winners from the bitcoin rally, which last year saw its value increase by more than 300%. Bitcoin’s value broke the $34,000 mark on 3 January before its rally lost some of its steam. It now trades at around $31,000.
Billionaire hedge fund manager Paul Tudor Jones is one of the big investors known to have allocated money to bitcoin, while the SkyBridge Capital hedge fund set up by Anthony Scaramucci has filed with the US regulator to launch a bitcoin fund.
READ Anthony Scaramucci’s SkyBridge Capital files for bitcoin fund launch
The Prime Factor fund, which Grimsley set up with a former BlackRock colleague and another founder, aimed to manage upwards of €100m. However, it failed to get traction raising assets and wound down last year.
Grimsley questioned whether there was strong appetite among institutional investors for bitcoin in the current market environment. The cryptocurrency has been lauded as both a speculative and safe haven asset.
“A safe haven asset will protect against inflation. It’s a strong argument in the future, but at the moment it is very much a speculative asset class,” he said.
“Institutional investors want either speculative assets, which have high capital growth, or safe haven assets. For bitcoin to be both seems contradictory.”
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Grimsley said Aberdeen Standard Investments is not interested in allocating money to bitcoin.
“It’s an interesting asset class that is developing, and the infrastructure around it may have secondary effects on more mainstream asset classes. But that’s about it,” said Grimsley.
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