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 Investors at some family offices, smaller mutual funds, and traders
at hedge funds say bitcoin has helped returns and demonstrated a low
correlation with other asset classes.
Hopes that bitcoin would become a broadly used alternative to other
currencies helped buoy its price to more than $1,000 in December
2013, when its market capitalization was $13 billion.
But the market cap has retreated since then, to about $6.4 billion
as of Thursday.
Early enthusiasts for the crypto-currency were drawn to its
revolutionary ideals of transparency and a lack of central or
official control. The risks of dealing in bitcoin were laid bare in
2013 when Tokyo-based exchange Mt Gox collapsed after admitting it
had lost the equivalent of hundreds of millions of dollars of
investor funds.
The currency's earlier ties to gambling and criminal websites did
not endear it to traditional investors.
Jeremy Millar, founder and managing partner at Ledger Partners in
London, estimated that 50 to 90 percent of bitcoin's current $6.4
billion market cap is held by near-institutional money such as
individuals at hedge funds and family offices. That has not changed
over the last two years.
He does not have an estimate for institutional investment holdings
of bitcoin. But he said they are likely to be insignificant,
compared with the smaller investors who have fewer restrictions
about fund allocation.
"What is clear though is that over the last two years, bitcoin has
emerged from its 'hacktivist' origins to a more institutionalized
ecosystem which includes the participation of hedge funds, traders,
and professional investors," said Millar.
BITCOIN IN PORTFOLIOS
Funds dedicated to investing in bitcoin are relatively small. The
largest is the Pantera Bitcoin Fund, a $160 million hedge fund
founded by Dan Morehead, formerly of Tiger Management, available to
institutions and individuals who invest $50,000 or more.
According to a Pantera Bitcoin Fund brochure, the fund was launched
in July 2013, a period when bitcoin traded at around $65. On
Thursday, it traded at $418.80, a gain of more than 500 percent from
July 2013. The firm did not comment on fund performance or its
investors.
The majority of the Pantera Fund's investors are family offices and
high net worth individuals, said two people familiar with the fund.
The Grayscale Bitcoin Investment Trust, with assets of more than $60
million, is another vehicle for investors. GBTC is backed by bitcoin
advocate Barry Silbert and his Digital Currency Group.
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It is the only publicly traded U.S. security in the over-the-counter
market invested in bitcoin. Volume is thin, with a few thousand
shares traded daily, according to Thomson Reuters data.
Antonis Polemitis, managing director at Ledra Capital in New York, a
family office specializing in education and technology, said that on
average, clients have allocated 1 to 3 percent of their portfolios
to bitcoin.
"A lot of people will take that bet with 1 percent of their assets,"
he said. "A 1 percent loss does not change anyone's life in any way.
If it goes up 10 times, then you get to feel very smart."
Some investment managers say having bitcoin in portfolios has helped
performance.
ARK Invest, which manages four exchange-traded funds with $240
million in assets, holds GBTC in its $12 million Next Generation
Internet ETF and the $7 million ARK Innovation ETF.
Chris Burniske, analyst and blockchain products lead at ARK Invest
in New York, said since investing in September 2015, GBTC has
contributed 67 basis points to the Next Generation Internet ETF's
return and 62 basis points to the ARK Innovation ETF.
For 2015, the Next Generation ETF posted a 15.29 percent return,
while the Innovation ETF had 3.76 percent gains.
For Kingsbridge Wealth Management, a multifamily office in Las Vegas
with $150 million in assets, GBTC has become a great diversifier
because so far it has had a low correlation with other asset
classes, said David Dunn, the firm's founder and chief investment
officer. The firm has about $1.7 million invested in bitcoin and its
underlying technology, the blockchain, Dunn said.
(Editing by David Gaffen and Matthew Lewis)
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