Ruffer’s bitcoin hedge comes good

Darren Sinden

On paper then Ruffer has potential running profits in excess of 100% of its original £550 million investment

Bitcoin inventor is Australian scientist Dr Craig Wright!

UK based asset management company Ruffer LLC is looking like it’s host to some of the smartest money in town as the new year gets underway.

The fund management company aims to deliver positive returns to investors regardless of events in the wider markets and tries to achieve that goal by taking carefully considered and managed risks.

As part of that process, Ruffer reinvested some of the profits it had made from positions in gold and put that money into Bitcoin in November, to diversify its exposure. When it disclosed the trade Ruffer said that it had invested around 2.50% of its portfolio which represented an approximate investment of £550 million.

Ruffer did not disclose what price it paid for its holdings in the cryptocurrency. However, Bitcoin started November at $13,712 per coin and finished the month at $19,441 giving a simple average price over the period of $16,576.50.

Ruffer said it saw the trade as hedge or insurance policy against wider market risks and potential for the continued devaluation of fiat or paper currencies, that could result from continuing fiscal and monetary stimulus instituted in the wake of Covid-19. Exactly the kind of thinking that advocates for Bitcoin and other cryptocurrencies usually espouse.

Though thus far, the US dollar has been the only real casualty with the dollar index down by 7.4% over the last 12 months. The greenback has, however, lost considerably more to the New Zealand and Australian dollars, as well as the Swiss franc in that time frame.

Even if Ruffer’s reasoning may have been slightly awry it’s the timing on the trade could hardly have been better and since November Bitcoin has rallied sharply trading as high as $35,000 in the last week.

The price action in 2021 has been volatile and Bitcoin also registered a 13% pullback from its recent highs but is once again testing towards $35000.

On paper then Ruffer has potential running profits in excess of 100% of its original investment though as a hedge trade those paper gains may be offset to some extent by the P&L from other positions in the portfolio.

What the trade does do however is highlight how institutions can utilise cryptocurrencies as part of their investment process. That comes at a time when FX and CFD brokers are writing to retail clients to remind them that FCA has banned the sale and marketing of cryptocurrency derivatives to UK private clients and that these contracts will now be marked closing only.

Professional clients are still able to trade in CFDs and other derivatives over leading cryptocurrencies, of course. The question is, is there an opportunity for margin traders to interest institutions in trading in those products as well? After all, CFDs offer considerable advantages in terms of security and storage over the physical coins.

Of course, the counterparty risk arising from an OTC trade may be an issue for some investors but presumably, as the major cryptocurrencies move further into the mainstream it ought to be possible for such trades to be central cleared or given up to a larger prime broker, in the same way, that CFD trades over equities for institutional clients are.

Equity CFDs started out as a niche business but quickly grew to become one of the biggest profit centres for the industry. Could cryptocurrencies follow a similar trajectory without the involvement of retail customers and is there an appetite to try and facilitate the business among margin trading participants?

Read this next

Industry News

SEC Chair Gensler pitches for regulation of crypto exchanges; will Ripple benefit?

In what can be perceived to be a big boost for the crypto community, Gary Gensler, the newly appointed chairman of the Securities and Exchange Commission (SEC) has asked the Congress to look into crypto regulation.

Industry News

Baton Systems integrates with LCH for automation of collateral workflow

Baton Systems, a provider of post-trade solutions for financial markets, has announced its integration with LCH, a leading clearing house, for automating the end-to-end collateral workflow for participants in the derivatives markets.

Industry News

CBOE Expands Its European Team with Hiring of Senior VP

CBOE Europe, a pan-European exchange operator and which is a part of CBOE Group based in the US, has expanded its European team with the hiring of Natan Tiefenbrun as its Senior Vice President, Head of European Equities.

Retail FX

London C-level executive market on fire: Tickmill, you’re up

Mukid Chowdhury is now the face of Trading 212. This, however, has left a newly vacant seat. Now, it’s Tickmill’s turn to fight for a Chief Financial Officer. The C-level executive market in London is on fire at the moment.

Industry News

Sapien Capital: FCA fines £170k for allowing Solo Group’s money laundering

The role of Sapien Capital is that it executed purported OTC equity trades to the value of approximately £2.5 billion in Danish equities and £3.8 billion in Belgian equities.

Industry News

MAS invites all fintechs to apply for green tech accelerator

Fintechs should aim to solve at least one of the three key challenges proposed by MAS: (i) Mobilising Capital; (ii) Monitoring Commitment; and (iii) Measuring Impact.

Technology

LSEG tests DCM digitization platform developed with Nivaura

This issuance marks an important milestone in capital markets automation and digitization and demonstrates the potential of such platforms to improve current capital market workflows.

Industry News

Archegos Capital prepares for insolvency proceedings

Archegos Capital, the troubled capital management firm, is preparing for insolvency proceedings as banks that handled its funds are trying to recoup their losses from it.

Inside View

FinanceFeeds announces interview and media opportunities at IFX EXPO

After a tough year for much of the world and the FX industry, Ultimate Fintech has announced the first in-person B2B event of the year – IFX EXPO Dubai.