BITCOINS FROM HEAVEN
Although institutional investors are wary, it has not stopped mutual and hedge funds from entering the fray to generate interest. Last November, Tobam, a $9bn Paris-based asset manager, launched what it claimed was Europe’s first bitcoin fund not traded on an exchange and although not a UCITS it offers daily liquidity based on market closing prices.
Tobam spent a year conducting research which showed that crypto-currencies are a good diversifier as they are not correlated to any other asset class, according to Yves Choueifaty, Tobam’s president. Other attributes included a deep well of liquidity, non-inflationary characteristics due to it being a real asset and the potential to be a store of value.
As for the risks, Choueifaty says: “Our presentation for our bitcoin fund starts with a disclaimer that crypto-currency is a very, very risky investment.
“That is very bad news,” he adds. “The good news is that investors are risk takers, which means it is not relevant to look at the risk chart when you look at the investment case. In our mind, the risk should determine the size of the investment, not whether the investment is relevant or not.”
Tobam was not alone. In 2017 more than 80 bitcoin crypto funds made their debut, according to fintech researcher Autonomous NEXT. The total number today stands at 175, although assets under management are relatively small at around $3bn to $4bn. Strategies range from investing in “initial coin offerings” or ICOs— which raise money by selling investors digital tokens in exchange for crypto-currencies — to holding bitcoin and other crypto-currencies, such as ethereum and litecoin.
In addition, in December the Commodities Futures Trading Commission seemingly gave credence to the asset class by allowing CME Group and CBOE Global Markets to launch bitcoin futures under the self-certification process. This entails a designated exchange filing a submission to the CFTC confirming the product complies with the Commodity Exchange Act and CFTC regulations – including a key provision that requires that the contract is not susceptible to manipulation.
However, the move sparked criticism from some industry participants who said the regulator should have consulted the market more widely before allowing the products. In many ways, tighter oversight would give investors more comfort but policymakers are moving at their own pace.
For example, South Korea, China and Japan are ahead of the curve and are looking to crack-down on fraudulent activity, while the US is still mainly at the discussion stage. They are concerned about stifling innovation.
The Securities and Exchange Commission and the CFTC are focusing on the procedure and operational controls for listing and trading digital currency futures, amid rising concerns over the risks bitcoin poses to the financial system.
