4 reasons why Paul Tudor Jones’ 5% Bitcoin exposure proposal is difficult for major funds


In an interview with CNBC on June 14, legendary investor Paul Tudor Jones issued a warning about rising inflation.After last week’s Consumer Price Index (CPI) report showed that the U.S. inflation rate hit a 13-year high, the founder Tudor Investments advocates 5% of Bitcoin (Bitcoin) Portfolio allocation.

Mutual fund companies ranked by assets under management, U.S. dollars. Source: MutualFundDirectory.org

After the merger, the world’s 50 largest asset management companies manage US$78.9 trillion in funds. Only 1% of investment in cryptocurrencies will reach 789 billion U.S. dollars, surpassing Bitcoin’s entire market value of 723 billion U.S. dollars.

However, there is a fundamental misunderstanding of how the industry works, which hinders the 1% allocation, let alone the 5% allocation.

Let us investigate a few major obstacles that the traditional financial sector must overcome before it can truly become a Bitcoin ape.

Obstacle 1: Perceived risk

For large mutual fund managers, investing in Bitcoin remains a major obstacle, especially considering the risks they perceive. On June 11, the US Securities and Exchange Commission (SEC) Warn investors about the risks of Bitcoin futures trading — Citing market volatility, lack of supervision and fraud.

Although the 90-day volatility rates of several stocks and commodities are similar or even higher, somehow the agency’s focus is still on Bitcoin.

DoorDash (DASH) is a US-listed company with a market value of 49 billion U.S. dollars, with a volatility rate of 96%, compared with 90% for Bitcoin. At the same time, the volatility of the US$44 billion US technology stock Palantir Technologies (PLTR) was 87%.

Obstacle 2: Indirect contact with American companies is almost impossible

Most mutual fund industries, mainly multi-billion dollar asset management companies, cannot buy physical bitcoins. There is no specific content for this asset class, but most pension funds and 401k vehicles do not allow direct investment in physical gold, art, or farmland.

However, exchange-traded funds (ETF), exchange-traded notes (ETN), and tradable investment trusts can be used to circumvent these restrictions. Cointelegraph explained before Differences and risks allocated to ETFs and trusts, But this is just a furore, because each fund has its own rules and restrictions.

Obstacle 3: Fund regulators and managers may prevent the purchase of BTC

Although fund managers have full control over investment decisions, they must abide by the regulations of each specific carrier and comply with the risk control imposed by the fund manager. For example, the addition of new tools such as CME Bitcoin futures may require SEC approval. Renaissance Capital’s Medallion fund faces this problem April 2020.

Those who choose CME Bitcoin futures, such as Tudor Investment, must continue to roll over before the monthly expiration. This question represents the liquidity risk and error tracking of the underlying tool. Futures are not designed for long-term arbitrage, and their prices are quite different from those on regular spot exchanges.

Obstacle 4: Conflicts of interest still exist in the traditional banking industry

Banks are relevant participants in this field, because JP Morgan Chase, Merrill Lynch, BNP Paribas, UBS, Goldman Sachs and Citigroup are the world’s largest mutual fund management companies.

Since banks are related investors and distributors of these independent mutual funds, they have close relationships with other asset management companies. This entanglement goes further, because the same financial groups dominate the issuance of stocks and bonds, which means that they ultimately determine the distribution of mutual funds in such transactions.

Although Bitcoin has not yet posed a direct threat to these industry giants, the lack of understanding and risk aversion, including regulatory uncertainty, has caused most of the world’s $100 trillion professional fund managers to avoid the pressure to venture into new asset classes.

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