Bitcoin has experienced an incredible rally in the last twelve months. From July 1, 2016, the value of bitcoin rallied from $680 inch-close to the $3,000 mark in mid-June and is now trading around the $2,650 mark. This impressive 12-month rally caught the attention of institutional investors who want their piece of the pie in this new high-performing asset class.
As a result, several new investment funds have been launched specifically to invest in bitcoin and other cryptocurrencies and even some established investment houses have started investing in digital currencies.
New Bitcoin funds entering the market
In the last twelve months, over a dozen new investment funds have been launched that aim to generate high returns for their investors by investing exclusively in bitcoin and other digital assets.
In September 2016, bitcoin entrepreneur Olaf Carlson-Wee founded the digital currency hedge fund PolyChain Capital and has managed to accumulate over $200 million of assets under management after investments from leading venture capital firms Andreessen Horowitz, Sequoia Capital, and Union Square Ventures, among others.
In January 2017, the AlphaBit Fund was launched to apply a range of different investment strategies to the world of digital currencies. Cayman Islands-based AlphaBit, led by co-founder and CEO Liam Robertson, aims to invest in bitcoin and other digital currencies through a mix of opportunistic trading, algorithmic trading, and investing in initial coin offerings. The fund has so far raised over $12 million and targets $300 million assets under management.
In March 2017, CNBC Fast Money commentator and portfolio manager Brian Kelly launched his own digital currency investment fund called Brian Kelly Capital Management. Kelly started the fund with his own capital first but has since opened it to outside investors such as family offices and high net-worth individuals with the aim to raise $50 million. The BKCM Digital Asset Fund is an institutional grade investment fund that invests in liquid exchange traded digital assets and has so far made investments in bitcoin, ethereum, litecoin, ripple and Zcash, among others.
In July 2017, former Bain & Co manager Roberto Ponce Romay launched a digital currency fund targeted at South American investors that invest in bitcoin, ether, and other digital assets. The fund launched with $10 million of assets under management and aims to increase that figure to $50 million later this year. The Crypto Assets Fund is the first fund of its kind that enables high net-worth individuals in South America to partake in the digital currency market through this type of investment vehicle.
In the same month, two recent Case Western University graduates and tech entrepreneurs, Ari Lewis and Sagar Rambhia, launched a $25 million digital currency investment fund that aims to use a combination of fundamental analysis, algorithmic trading, and event-driven arbitrage trading. The fund has so far invested in bitcoin and ether, among other digital assets.
Other digital currency funds that are set to launch later this year include Pollinate Capital, General Crypto, Crypto Lotus, BlockTower Capital, Block View Capital, and Auryn Capital.
This is a very clear signal that there is high demand from high net-worth individuals, family offices, and venture capital firms to gain investment exposure to bitcoin and digital currencies, in general. This new-found demand for bitcoin, of course, will bode very well for the future price development of the digital currency. If the above-mentioned funds can grow their assets under management to the hundred of millions, then that would lead to substantial upward buying pressure on bitcoin and other digital assets, which would give this year’s digital currency rally another hefty boost.
Established investment houses are also starting to buy Bitcoin
Aside from newly launched digital currency funds, there are also established investment houses that are starting to invest in bitcoin. According to Hedge Fund Research, there are several currency hedge funds that have started to invest in bitcoin. In fact, currency hedge funds have been able to outperform their peers thanks to their investment exposure to bitcoin.
There are also more traditional investment houses offering bitcoin as an investment. For example, Swiss private bank Falcon Bank has recently launched a new blockchain asset management service that allows its high-net worth clients to buy and sell bitcoin with their cash deposited at the bank. While across the pond in the U.S., wealth management giant Fidelity Investments is planning on enabling its clients to view the prices of digital currencies such as bitcoin, ether and litecoin on its platform.
Big money investors will likely push Bitcoin’s price to new highs
So far, bitcoin’s price action has been primarily dominated by small investors, high-net worth individuals, and a handful of investments funds. In other words, bitcoin’s exuberant rally was largely driven by private individuals investing in the digital currency. That means that bitcoin still has massive upside price potential, which the digital currency will experience sooner than later once institutional investors start to invest in bitcoin.
Bitcoin currently has a market capitalisation of around $35 billion. So if for example, say only 20 institutional investors would each invest $250 million in bitcoin on behalf of their investors and clients, the market capitalization of bitcoin would increase by $5 billion. This sort of upward buying pressure on bitcoin would shoot the value of the digital currency back up towards the $3,000 mark.
The wider implication of that is if the broader institutional investor community (fund managers, pension funds, private banks, etc) wakes up to this new asset class and several billion dollars start flowing into bitcoin, the price of bitcoin could easily surpass the $5,000 or $10,000 mark within only a few years.