SIMON LAMBERT: Know when to hodl ’em, know when to fold ’em! Ruffer says its huge bitcoin gain shows how cheap money borrows hope from the future


‘You must know when to hold them, know when to turn them.’

Many bitcoin investors wish they were paying attention to the famous song by Kenny Rogers of The Gambler on Easter.

The leading cryptocurrency could have done no wrong in the first four months of the year, according to Coindesk in mid-April, but it has been a very different story since bitcoin peaked at $64,829.

This week, bitcoin fell below $30,000 again for the second time in a month – painful viewing for anyone who had mentally banked gains in April and now finds itself down nearly 50 percent.

‘You’ve got to know when to hold ’em, know when to turn ’em: Bitcoin investors want to pay attention to the famous lyrics of Kenny Roger’s song The Gambler.

It should be noted, as I’ve done here before, that bitcoin investors are a diverse group and don’t necessarily have the same attitude to risk and reward as many traditional investors – and higher octane movements in percentage points more joy. Can stomach.

There will be some true believers, supporting bitcoin as the future and claiming they are thinking about ten or 20 years and not what has happened since we arrived in 2021.

A more substantial portion (and cross section) are long-term bitcoin holders, who may be in for a headache from its fall, but are well up on their initial investment, having bought under $10,000.

The real winners were found quickly – or in the moment of an accident – and bought for less than $5,000 or $1,000.

Still, it’s never fun to look at a chart with rosy glasses of vision and think: ‘Yeah, it was painfully obvious that it was ripe for decline, I should have taken some profit.’

Therefore, investment trust Raffer’s latest annual report will be strange to many bitcoin investors – even as they are still sitting on paper profits in multiples.

The trust, which describes itself as being all-weather, can invest in whatever it wants and made headlines late last year when it emerged that it had taken an overwhelming bitcoin position.

Perhaps the smartest, or luckiest, piece of bold active management in recent times, Raffer bought bitcoin and some bitcoin proxies in November, when the cryptocurrency was trading below $10,000. It halved after reaching $30,000 in January, and then fully cashed in near the peak in April, gaining more than 500 percent.

Talk about when to hold them, know when to turn them.

The report from Ruffer's Investment Manager charts the rise and fall of bitcoin, major high-profile events for the cryptocurrency, and where it is bought and sold.

The report from Ruffer’s Investment Manager charts the rise and fall of bitcoin, major high-profile events for the cryptocurrency, and where it is bought and sold.

Besides us saying ‘Lucky Gitts’, it inspired some entertainment in the discussion at This Is Money Office, as Ruffer’s initial investment argument was bitcoin’s long-term potential for adoption by the financial and institutional mainstream and emerging as digital gold. .

So, in an investment world where we are routinely advised to think long term, what is up with all this short term trading?

A year-end review from Ruffer’s investment manager sums it up. It said: ‘The argument was that bitcoin was an emerging store of value and that institutional investors would move to adopt it as “digital gold”. The narrative unfolded faster than we could have imagined as the show featured in the chart below.

‘Bitcoin may still fulfill its potential, but the market displayed many signs of foaming – retail speculation, excessive leverage, Coinbase IPO, Tom Brady’s laser eyes, Dogecoin, Elon Musk hosting Saturday Night Live, $ 60 million non-fungible tokens (NFTs) etc.

Additional liquidity is a great way to bring future expectations into current prices.

“In the short term, at least, bitcoin was exhibiting the characteristics of a risky, speculative asset and therefore no longer fulfilled the portfolio role we intended for it as a protective and diversified asset.” We sold all our exposure (+515bps performance contribution) in April.

‘Our chief investment officer, Henri Maxie, speculates that additional liquidity is a great way to bring future expectations into current prices.’

That last bit probably holds an important lesson for investors, whether they’re interested in bitcoin or couldn’t care less about the cryptocurrency.

Just as debt involves borrowing from the future, in the sense that you take money now to pay it off and withdraw more later, a huge wave of cheap money borrowing returns investment returns for months or years to come. can.

When money floods the market, as with lockdown crash-fighting rate cuts, quantitative easing and other stimulus measures, players are less concerned about where it is going and what happens is more likely to pay for it.

The rebound from the coronavirus crash has seen some spectacular momentum trades: the most high-profile ones are bitcoin, Tesla and Phang stocks, but other stocks have gone over the moon as well.

Some increase would be reasonable, but you can be sure that for many people today’s prices have borrowed a bit of hope that will be a fair profit in the future.

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