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Bitcoin price is still down nearly 50% from its all-time high of nearly $65,000 as it trades just above $33,000. Interestingly, around the time Bitcoin topped out in the first half of the year, institutional firms sold their position in BTC, with SkyBridge Capital being one of them, which trimmed its position and rotated some of the profits in Ether. [coin_stats_table symbol="ETH"] UK-based £580m Ruffer Investment Management is another one that made a $1.1 billion profit in just five months from investing in bitcoin. Ruffer took some profits in December and early January only to sell its last tranche in April when the crypto asset started to look too much like “a risky, speculative asset.” “It all has a flavour of the late 1990s,” said company director Duncan MacInnes as he noted how despite all the craziness during the dot com bubble, the internet did change the world.
“In 2021, the excitement is in crypto currencies and decentralised finance. The promise is real. But so too is the surge in excess liquidity generated by fiscal stimulus and ongoing quantitative easing.”
A Highly Skewed And Attractive Risk/Reward Asset
In a recent update to the reason behind Ruffer’s Bitcoin investment and the eventual decision to sell, the investment director said they have been looking to move away from bonds and towards real assets that offer the potential for inflation protection. MacInnes talked about how today asset allocators face two questions, first, is inflation making a generational comeback, and second, is the balanced portfolio dead?
“The implications for conventional balanced portfolios are profound and painful. Bond yields rise, so bond prices fall. Equities de-rate, so equity prices fall. Worse, the two asset classes become positively correlated which is the opposite of the last 40 years. In crypto speak, you get ‘rekt.”
And here, looking for an inflation hedge, assets like gold, property, infrastructure and commodities have their own strengths and weaknesses. So, Ruffer invested in cryptocurrency after seeing it as an “emerging store of value with a highly skewed and attractive risk/reward profile.” Bitcoin, however, has to “betray its spiritual foundations,” according to him, which means to be co-opted by Wall Street and be blessed by the authorities. Despite being bullish about the cryptocurrency, Ruffer sold their BTC stash after excess liquidity peaked in April as the second round of US stimulus checks landed in the economy. “Bitcoin may yet fulfil its potential, but peak liquidity coincided with many signs of froth,” MacInnes said, pointing to retail speculation, record leverage, the Coinbase IPO, Tom Brady donning laser eyes, NFT mania, Elon Musk hosting Saturday Night Live, and all the craziness around Dogecoin.
“In the short term at least, bitcoin was exhibiting the characteristics of a risky, speculative asset and therefore no longer fulfilled the role we wanted it for as a portfolio protection and diversifying asset. We sold all of our exposure.