The wealthy are jumping into bitcoin as the stigma around crypto fades

Christian Armbruester wishes he’d bought more. The founder of Blu Family Office, a London-based investment firm for wealthy clients, dabbled in cryptocurrencies a few years ago. But the one-time 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, he’s ratcheting up his investments in the space and eyeing big gains.

“We’re now looking for trading opportunities in a very exciting field,” said Armbruester, who manages about US$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’s invested 10% of his liquid assets in bitcoin. Wall Street legends Stanley Druckenmiller, Paul Tudor Jones and Bill Miller have endorsed buying it. After influential money manager Rick Rieder went on CNBC last month and said bitcoin “is here to stay”, more than 874 000 viewers watched the clip on Twitter, attracting far more hits than his segments on Covid-19 or monetary policy.

“It tells us that bitcoin has caught the attention and imagination of many people,” Larry Fink, CEO of asset management giant BlackRock and Rieder’s boss, during a virtual conference on 1 December. “But it’s still untested and a pretty small market relative to other markets.”

The last time bitcoin skyrocketed, in 2017, many wealthy investors largely stayed on the sidelines. The ersatz money was compared to the tulip mania during the Dutch Golden Age, and its utility as a money-laundering device in the digital underworld scared off many in mainstream finance. Warren Buffett called bitcoin a “mirage” and Jamie Dimon said it was a “fraud” (although he later expressed regret for that remark).

Unproven

Since then, bitcoin has yet to prove it will truly become a form of universal money accepted around the world. And many affluent investors such as Armbruester believe alternatives such as ethereum may ultimately prove more valuable. Moreover, cryptocurrencies are traded in an opaque market driven by rampant speculation and arcane technology rather than the easy-to-see fundamentals that drive stocks or bonds or commodities.

Even so, affluent investors are giving bitcoin a serious second look as it wins mainstream acceptance by influential players such as PayPal and Visa, both of which are enabling account holders to use crypto. Miller is one of many traditional investors who’s noted that the stability of bitcoin and its 12-year-old technology, blockchain, is bolstering confidence in its staying power.

Then there’s the moves by central banks and governments to flood economies with cash and drop interest rates to near zero to address the coronavirus pandemic. This massive wave of quantitative easing and fiscal stimulus, which shows signs of continuing next year, is also burnishing cryptocurrencies’ credibility as an alternative asset class.

“Normally in times of crisis people run to cash but who in their right mind wants to be cash-rich at a time when major economies are devaluing their currencies?” says Kevin Murcko, the founder and CEO of CoinMetro, a cryptocurrency exchange based in Estonia. “You could say that Covid-19, the US election, Brexit and, well, the entirety of 2020 have altered the way many in traditional finance view the value of digital assets.”

How long that may last is unknown. But analysts at JPMorgan Chase & Co say investors have been withdrawing cash from gold funds at the same time bitcoin is winning over more institutions. The Grayscale Bitcoin Trust, a listed security popular with money managers, has seen inflows of almost $2-billion since October compared to outflows of $7-pbillion for exchange-traded funds backed by bullion, according to a JPMorgan report this week.

The analysts’ calculations suggest bitcoin only accounts for 0.18% of family office assets, compared with 3.3% for gold ETFs. Tilting the needle from bullion to the cryptocurrency would represent the transfer of billions in cash.

“The adoption of bitcoin by institutional investors has only begun,” wrote the analyst team led by Nikolaos Panigirtzoglou.

Tania Modic, a wealthy investor based in Lake Tahoe, Nevada, says she’s bought bitcoin for years, partly as a “convenient store of value” free of the hassle and expense of handling and storing physical gold. Yet Modic says don’t discount the psychological and cultural forces driving the wealthy to warm up to crypto.

Fomo

First, there’s “Fomo”, or fear of missing out, which is running high in the affluent circles she moves in. Then there’s all the young people who are scooping up crypto on Robinhood and other trading apps. Bitcoin trading on eToro, a platform that’s popular with amateur investors in Europe and Asia, is running close to the boom in late 2017, according to the firm. Additionally, the number of women going into bitcoin on the site has doubled compared to the last bull run.

“The big boys are putting their funds into bitcoin as a hedge against being called Neanderthals who missed the crypto boat,” says Modic, the managing member of Western Investments Capital, her investment family office. “And let’s not forget that they all have millennial kids or grandkids rooting them on.”  — Repoted by Edward Robinson and Benjamin Stupples, (c) 2020 Bloomberg LP