Christian Armbruester wishes he could buy more.
Armbruester, founder of Blu Family Office, a London-based investment firm for affluent clients, dabbled in cryptocurrencies a few years ago. But the occasional investment banker, whose family made a fortune in metals and manufacturing, believes cryptocurrencies have earned a place in a diversified portfolio. With Bitcoin surging more than 270% since its 12-month low in March, it is recapturing its investments in space and eyeing big returns.
“We’re now looking for trading opportunities in a very exciting area,” said Armbruester, who manages about $ 670 million for Blu Family Office, including his personal wealth.
Armbruester has plenty of company. Mexican media billionaire Ricardo Salinas Pliego recently tweeted that he is invest 10% of its liquid assets in Bitcoin. Wall Street legends Stanley Druckenmiller, Paul Tudor Jones, and Bill Miller have approved its purchase. After influential currency manager Rick Rieder went on CNBC last month and said Bitcoin was “here to stay,” more than 874,000 viewers watched the clip on Twitter, attracting far more hits than its Covid-19 or monetary policy segments.
“It tells us that Bitcoin has caught the attention and imagination of many,” Larry Fink, chief executive officer of asset management giant BlackRock Inc. and the Rieder manager, during a virtual conference on December 1. “But it is still unproven and quite a small market compared to other markets. ”
The last time Bitcoin skated in 2017, many wealthy investors largely stayed on the sidelines. The ersatz currency was compared to the tulip mania during the Dutch Golden Age, and its usefulness as a money laundering device in the digital underworld was a major source of scare in mainstream finance. Warren Buffett called Bitcoin a “mirage” and Jamie Dimon called it a “fraud” (though he later expressed remorse for that comment).
Since then, Bitcoin has yet to prove that it will truly become a form of universal currency accepted worldwide. And many affluent investors like Armbruester believe alternatives like Ethereum it can ultimately be more valuable. Furthermore, cryptocurrencies are traded in a volatile market driven by rampant speculation and arcane technology rather than the easy-to-see essentials that drive stocks or bonds or commodities. And this week investors are getting a lesson in Bitcoin volatility, with the cryptocurrency skidding about 8.5% since Sunday.
Yet affluent investors are giving Bitcoin a serious second look as it gains mainstream acceptance from influential players like PayPal Holdings Inc. a Visa Inc., both of which enable account holders to use crypto. Miller is one of many traditional investors who have noted that Bitcoin’s stability and its 12-year-old technology, blockchain, are strengthening confidence in its staying power.
Meanwhile, other investors are choosing to support the new generation of Bitcoin-inspired database and financial software. “We have recently allocated Blockchain and funds and companies focused on distributed ledger technology, and will continue to allocate more,” said Bobby Console-Verma, founder of London-based technology company 1fs Wealth managing money for its investment office.
The central banks and governments then move into cash-flooded economies and reduce interest rates to nearly zero to tackle the coronavirus pandemic. This massive wave of quantitative easing and fiscal stimulus, which is showing signs of continuing next year, also buries the credibility of cryptocurrencies as an alternative asset class.
“Usually in times of crisis people run into cash but rightly want to be cash rich at a time when big economies are depreciating their money?” said Kevin Murcko, founder and CEO of CoinMetro, a cryptocurrency exchange located in Estonia. “You could say that Covid-19, the US election, Brexit, and, well, 2020 have all changed the way many in traditional finance see the value of digital assets.”
How long that can last is unknown. But analysts at JPMorgan Chase & Co. say that investors have been withdrawing money from gold funds at the same time Bitcoin is gaining over more institutions. The Grayscale Bitcoin Trust, a listed security popular with money managers, has since seen inflows of nearly $ 2 billion October compared to $ 7 billion outflows for bullion-backed exchange-traded funds, according to a JPMorgan report this week.
Analysts’ calculations suggest that Bitcoin accounts for only 0.18% of family office assets, compared to 3.3% for gold ETFs. Tilting the needle of a bullet to the cryptocurrency would represent the transfer of billions in cash.
“Institutional investors have only just begun to adopt Bitcoin,” wrote the analyst team led by Nikolaos Panigirtzoglou.
Tania Modic, a wealthy investor based in Lake Tahoe, Nevada, says she has bought Bitcoin for years, partly as a “convenient store of value” free from the hassle and expense of handling and storing physical gold. And yet, Modic says don’t underestimate the psychological and cultural forces that drive the rich to warm up to crypto.
First up is FOMO, which ranks high in the rich circles in which it moves. Then there are all the crypto-capturing teens on Robinhood and other trading apps. Bitcoin trading on eToro, a platform popular with amateur investors in Europe and Asia, is running near the boom in late 2017, according to the company. In addition, the number of women entering Bitcoin on the site has doubled compared to the last bull run.
“The big boys are putting their money into Bitcoin as a hedge against being called Neanderthals who missed the crypto boat,” said Modic, managing member of Western Investments Capital LLC, his investment family office. “And don’t forget that they all have millennial children or grandmothers rooting for them.”
– With the help of Eddie Spence
(Updates Bitcoin performance this week, adds quote from Bobby Console-Verma.)