Bitcoin’s march toward respectability faces another hurdle as hedge-fund platforms reject the overtures of firms trading cryptocurrencies
Brooklands Fund Management, Mirabella Advisers and Privium Fund Management— which provide back-office functions and regulatory help for investment firms—all say they’ve had discussions with bitcoin funds in recent months. So far, they’ve turned down requests to take them on as clients, citing a lack of understanding about the value store and concerns over whether it’s a legitimate asset or a bubble waiting to burst.
It’s the latest blow for a digital currency that’s struggling to break into the financial mainstream. While investors have embraced bitcoin, sending it soaring toward $10,000, some big firms have been resistant, with JPMorgan Chase & Co. boss Jamie Dimon famously calling its devotees “stupid.”
“The biggest risk we face is: is this hype? Is it a fad? Or is it here to stay?” said Clayton Heijman, chief executive officer for Privium in the UK, Netherlands and Hong Kong. “Is it the Tamagotchi from 20 years ago?” he added, referring to the digital pet simulators that were one of the biggest fads of the 1990s.
Heijman said he’s spoken with three to four digital-currency funds a week for the past few months, but that a number of key questions, including the potential for money laundering, would need to be answered before he’d consider bringing them to his platform.Brooklands co-chief executive officer Michael Williams described his encounters with four bitcoin hedge funds in the past 2 months as “introductory meetings” that probably won’t end up in a partnership anytime soon. Britain’s Financial Conduct Authority, which has warned about the volatility of cryptocurrencies, “wouldn’t look too kindly” on them, he said.
‘They’re Scared’
“There are huge risks for the platforms,” said Oz Eleonora, founder of crypto-asset investment firm Zinica Group and a board member of the Blockchain Institute of Technology in the U.S. “They’re scared,” he said. “They want to participate, but there’s a lot of reputation at risk. If you introduce a bitcoin fund without addressing the compliance properly, you’ll anger both the regulator and your client base.”
Plenty of investors are ready to buy into bitcoin -- even after Ray Dalio, founder of hedge-fund firm Bridgewater Associates, called it “a bubble.” The most widely used digital currency is up more than 750% this year and recently soared past the $100 billion total-value mark.
CME Group Inc., the world’s largest exchange owner, will start offering bitcoin futures by the end of the year, while Paris-based fund manager Tobam has set up what it says is Europe’s first mutual fund to track the value of bitcoin investments. Senior executives at Goldman Sachs Group Inc. and Citigroup Inc. have said they’re researching cryptocurrencies and the underlying blockchain technology.This interest is reflected in the popularity of bitcoin hedge funds. There are now more than 100 cryptocurrency-focused money pools, with 84 opening this year, up from 11 in 2016, according to research by Autonomous Next.
For now, though, platforms are holding back.
Funds are “struggling to find service providers that want to help them,” said Cedric Jeanson, a former JPMorgan trader who set up the bitcoin-focused BitSpread Ltd. hedge fund in 2014.
Joe Vittoria, chief executive officer of the Mirabella platform, said he has doubts over bitcoin’s liquidity and where oversight might come from. There are also suggestions that the digital currency’s valuation should be below where it’s currently trading, he said.
While Mirabella’s prohibition on signing up cryptocurrency funds “is being reviewed, and is likely to be lifted soon” because of investor interest, Vittoria said the firm will remain cautious.
Brooklands boss Williams agrees. “We’re not ready to enter the space,” he said. “We’re monitoring the market, but cryptocurrencies will need to be a regulated security before we’d consider supporting a cryptocurrency-derived product.”