Bitcoin finds room in small funds; large institutions still on sidelines

Fri Mar 18, 2016 7:22am EDT
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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Digital currency bitcoin has found favor among smaller investors, thanks to the availability of funds designed to invest in it, but remains a niche among the larger investing community.

Investors at some family offices, smaller mutual funds, and traders at hedge funds say bitcoin has helped returns and demonstrated a low correlation with other asset classes.

Hopes that bitcoin would become a broadly used alternative to other currencies helped buoy its price to more than $1,000 in December 2013, when its market capitalization was $13 billion.

But the market cap has retreated since then, to about $6.4 billion as of Thursday.

Early enthusiasts for the crypto-currency were drawn to its revolutionary ideals of transparency and a lack of central or official control. The risks of dealing in bitcoin were laid bare in 2013 when Tokyo-based exchange Mt Gox collapsed after admitting it had lost the equivalent of hundreds of millions of dollars of investor funds.

The currency's earlier ties to gambling and criminal websites did not endear it to traditional investors.

Jeremy Millar, founder and managing partner at Ledger Partners in London, estimated that 50 to 90 percent of bitcoin's current $6.4 billion market cap is held by near-institutional money such as individuals at hedge funds and family offices. That has not changed over the last two years.

He does not have an estimate for institutional investment holdings of bitcoin. But he said they are likely to be insignificant, compared with the smaller investors who have fewer restrictions about fund allocation.   Continued...

A Bitcoin logo is displayed on a screen inside the Bitcoin Center New York City in New York's financial district July 28, 2015. REUTERS/Brendan McDermid