The strong performance of bitcoin was not driven by the initial risks Ruffer cited as justification for the position.
Ruffer Investment Company (LSE: RICA) has sold its bitcoin investments. The sale, which The Times estimates has made Ruffer’s overall fund management business around $1.1 billion (£775 million), comes just over six months after the firm invested on the basis that it offered a defensive hedge.
The move raised some eyebrows, with most fund managers steering clear of investing directly in bitcoin or other cryptocurrencies, with the view often that the asset class is too volatile, risky and speculative.
However, at the time of the investment, the managers of the trust, Hamish Baillie and Duncan MacInnes, argued that the cryptocurrency has very low correlation with other asset classes and therefore offered a “small but potent insurance policy”.
Bitcoin, they argued, acted as a hedge against the risk of the world’s major currencies devaluing due to growing public deficits, zero and negative interest bank rates and historically unprecedented quantitative easing. The managers also argue that bitcoin will see increasing institutional adoption, helping to support its price longer term.
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This “small but potent insurance policy” has paid off. In the latest update to shareholders, the trust announced that it had sold all its bitcoin holdings in April, just before the price of the cryptocurrency peaked.
From the start of November 2020 to the start of April 2021, bitcoin appreciated by more than 300% in dollar terms. Since then, bitcoin has become much more volatile, experiencing severe price declines, alongside other cryptocurrencies.
However, it is interesting to note that the strong performance of bitcoin was not driven by the initial risks Ruffer cited as justification for the position, such as currency devaluation, growing deficits, negative interest rates and quantitative easing. Instead, the price seems to have largely been driven by increased interest from retail investors and adoption by a handful of high-profile companies, most notably Tesla.
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Ruffer notes this in its latest update. It says: “The bitcoin exposure was put into the portfolio as a defensive investment, to add diversification to our inflation hedges. Its strong rise thereafter reflected increased institutional and retail interest, and as it hit all-time highs in April we judged its asymmetry to be much lower (and importantly the threat to gold to be lower, too). With more attractive risk-adjusted positions elsewhere in the market, we sold the remaining exposure.”
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