Bitcoin In The Institutional Investment Portfolio

In May 2020, Paul Tudor Jones sent a remarkable letter to the participants of his “Tudor BVI Global Macro” Fund [1]. He revealed that the fund would take a position in bitcoin. Should institutional investors follow this example?

Marcel Burger

--

The increased market capitalisation of bitcoin in 2017 meant that a single Dutch institutional asset manager felt compelled to get a better idea of bitcoin and other crypto assets. There was a new asset class on the rise that quickly surpassed the market capitalisation of other asset classes in which investments were already made. A lack of solid fundamental valuation methods and sky high volatility led to continuing domination of skepticism. Nevertheless, renowned institutional parties give bitcoin a place in the portfolio 3 years later. Why would an institutional party consider investing in bitcoin? In this article I share two thoughts to help you formulate an answer to that question yourself and I conclude with a vision for the future.

What drove bitcoin's creation?

Satoshi Nakamoto (the pseudonym of bitcoin's still unknown creator) saw the 'trust problem' as the main reason behind bitcoin's design. According to Satoshi, the biggest problem with conventional money was the huge role that trust plays in making the system work. For example, to transfer money you have to trust a number of central parties in order for that transaction to be successful and you must be convinced that your funds are safe in custody. But a level higher, holders of the funds have to rely on central banks not to allow for (too much) devaluation of this money. Unfortunately, over the years and even today, there are plenty of examples where this trust is broken. Think for example of Argentina, Zimbabwe or Lebanon. The most terrifying example is Hungary in 1946, where prices doubled every 15 hours. In the first block of the bitcoin blockchain, Satoshi refers to this trust issue in a hidden message: "The Times 03 / Jan / 2009 Chancellor on brink of second bailout for banks".

Current state of fiscal and monetary policy

Prior to the Covid19 outbreak, global debt levels were already at unprecedented levels. Despite the fact that we all believe that the amount of debt must be curbed and that we also make clear…

--

--

Marcel Burger

As CIO Marcel heads Amdax Asset Management. He holds a MSc in Econometrics. Before he cofounded Amdax, he worked as a trader, portfoliomanager and quant.