Bitcoin has been struggling to find buyers as of late, but that may be short lived.
According to Mike Novogratz, a former Wall Street Hedge Fund Manager, he thinks that at some point just about all the big Macro Funds will have at least a 1% allocation in bitcoin.
He is actually curious why that is not happening already:
"Don’t understand why all the big macro funds out there don’t have a 1 percent position in Bitcoin. Just seems logical even if your prone to be a skeptic."
(Source: https://twitter.com/novogratz/status/1094222682953003008)
He then followed that tweet up the hashtags: raydalio, goldproxy, animalspirits, and greatriskreward
What might that look like?
Bridgewater Associates is said to manage about $160 billion in assets and be one of the largest hedge funds in the world.
(That is the fund's manager Ray Dalio, pictured at the top)
If you include the Top Ten hedge funds in the world, you easily eclipse the $500 billion mark.
If 1% came from these guys, it would represent about $5 billion in buying, not earth shattering, but not too shabby either, especially when bitcoin is a $60 billion dollar market.
And that is only the Top Ten hedge funds...
If you also include some of the largest macro mutual funds, like say a Vanguard, you see funds under management in the trillions of dollars...
(Vanguard has roughly $5 trillion assets under management)
A 1% allocation from them would be $50 billion.
If you get some, or all of these to also start taking 1% positions you start seeing the potential here.
The beautiful thing about this is that bitcoin doesn't even have to catch on as a global form of payment for this to happen....
It just has to be a proxy for gold.
Many of these funds hold small allocations in gold and other precious metals as a hedge against uncertainty.
Bitcoin would be used exactly the same way.
If it were, and I think it will be, the price of bitcoin should go up significantly over the next 5 years or so as they start to take positions.
We just need more in the way of infrastructure and clarity on regulations before they start moving in.
Stay informed my friends.
Image Source:
https://www.businessinsider.com/ranked-the-10-biggest-hedge-funds-in-the-us-2018-5
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All US hedge funds with greater than $150MM assets under management (AUM) are required to file quarterly statements with the SEC. Among the reporting requirements is liquidity information for each of their positions. Most funds use an assumption that they could absorb up to 10% of the daily trading volume in an asset, and calculate their effective liquidity as the total trading days it would take to sell off their entire position.
Most macro funds are not comfortable with having many illiquid positions, and a fund the size of Bridgewater could not approach anywhere close to a 1% allocation without the position being marked as extremely illiquid.
It's sort of a chicken and egg problem... markets need liquidity to attract big funds, but markets need big funds to have enough liquidity. The strong evidence of rampant manipulation on most BTC exchanges only exacerbates this problem.
Futures markets will help, but the liquidity issues still have to be resolved before we move past cash-settled futures to bitcoin-settled futures. ETF's could help, though the first approved ETFs will most likely trade in cash-settled BTC futures to approximate BTC indexation instead of actually holding bitcoin.
While eventual Wall Street adoption has been at the heart of my HODL thesis since I first started consulting for hedge funds in 2014, we are not very close to that happening, in my opinion.
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Most likely it will happen the same way that retail pushed prices to all time highs in 2017 - FOMO. One fund will dip their toes in and then another, and then another etc etc etc.
Regarding volume, keep in mind that there are also billions traded OTC every day as well, something not included in the numbers shown on public exchanges. So, the liquidity might not be as terrible as it may seem on first glance.
Regarding cash settled futures vs. physically settled, that only will hold true if you believe some other ETF will be approved besides the VanEck/CBOE proposed fund, which is physically settled. In this instance I think their name recognition, history of dealing with these things, and connections will ultimately help them get theirs through first or one of the first.
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I have not been following the progress of every proposed fund. It theirs is approved first, then I will be happy to have been wrong!
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These guys claim to be offering physically settled products as well, though I haven't researched them much:
https://www.investinblockchain.com/coinflex-offer-crypto-futures/
VanEck and CBOE refiled with the SEC their physically settled bitcoin ETF product:
https://www.coindesk.com/cboe-re-files-vaneck-solidx-bitcoin-etf-proposal
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if they invest only 1% the price of all market shoot to the sky straight away.
If we believe in crypto, (and some of us strongly believe in crypto) then we should consider to invest at least 6% of all our capital into bitcoin and other projects with real use case.
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There was a study done on the perfect risk-adjusted portfolio and the results said that a portfolio containing roughly 4% exposure resulted in the ideal model. For the less risk averse, it recommended a 6% allocation. Exactly what you are mentioning.
https://bitcoinist.com/new-yale-study-every-portfolio-must-include-at-least-6-bitcoin/
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1%? How about 5%!
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Research out of Yale said a 4% allocation to bitcoin was the ideal allocation for the perfect risk adjusted portfolio.
Check it out:
https://bitcoinist.com/new-yale-study-every-portfolio-must-include-at-least-6-bitcoin/
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Yes, the hedge funds would like a position.
However, i doubt they will buy it on the exchanges.
Too small, too slow, and in many cases, illegal.
So, if they are buying, they are buying OTC.
And so, even if they do own those positions, no one really knows about them.
Further, like real quantities of gold, the price of quantities of bitcoin are much different then the exchange prices.
The dollars per bitcoin, on the exchanges are severely limited. The exchanges don't have enough dollars in them, nor enough bitcoin in them. The doorway in and out is way too small.
It is that doorway that we should keep an eye on.
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There is probably some truth to this. Though that means that if some demand comes in on the exchanges it won't take much to sky rocket prices.
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What is the effect of Tax Season on BTC, especially considering 2018 was a loss-year for virtually all crypto? Will tax refunds be a boon for crypto in the coming months? Or will a sell-off to cover 2018 due taxes continue to drag BTC down?
BTC is so volatile, that a 2x increase in price would not be unlikely before this proposed situation's 1% position happens-- arguably doubling the money in required to buy the target volume of BTC .
Also, the BTC community is composed of an undetermined number of HODLers that might not lower their respective asking prices, resulting in a gray area of what the price-rise would look like to actually fill the 1% positioning from Macro Funds.
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My guess is that it would more likely be a boon. On years when bitcoin is down, tax returns likely offer some potential buying during the Spring of the following year. On years when bitcoin is way up (like 2017), taxes due in the Spring of the next year are likely a major drag on prices...
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As a gold alternative I can see Bitcoin having a solid future. I think payment around the world will take longer to mature.
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Yep, I think so as well. Though Jack Dorsey over at Twitter/Square said they will be implementing the Lightning Network on their Cash App... perhaps payments might be coming sooner than some think.
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the key clause here is "at some point." These dinosaur institutions are slow to change. They have a monopoly on money already, so why change? If they are the ones who are supposed to elevate crypto, why would they write their own demise?
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They aren't writing their own demise. This is about hedge funds delivering alpha. There have been several models that show having at least 4% exposure to bitcoin is the ideal risk adjust portfolio.
Here's one:
https://bitcoinist.com/new-yale-study-every-portfolio-must-include-at-least-6-bitcoin/
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It’s only a matter of time...
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I agree. They should be putting about 4% in there according to the ideal risk adjusted portfolio model, however, just 1% would be enough to skyrocket bitcoin prices.
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So with you on this jr — i am aghast thatbit hasn’t happened already!!! 😳😳😳
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I think it will happen, just a bit slower than we all would like.
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Considering that research has shown that the bubble in 2017 was created by about $5-10 billion of new capital, 1% of these funds could have a substantial impact on the market. The only exception would be the fact that the ICO market has slowed down but that can always re-open when capital becomes available again.
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Yep exactly.
Did you see this by the way?
https://bitcoinist.com/new-yale-study-every-portfolio-must-include-at-least-6-bitcoin/
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any supportive evidence?
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Novogratz used to run one of these massive Macro Funds, and he hob knobs with a lot of the guys that do still, and he thinks they will... which is pretty good anecdotal evidence if you ask me. :)
That combined with the fact that a study out of Yale on creating the prefect risk-adjusted portfolio said that a 4% allocation in bitcoin was ideal.
https://bitcoinist.com/new-yale-study-every-portfolio-must-include-at-least-6-bitcoin/
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