After major hedge fund Tudor BVI decided to allocate “a low single-digit” of its assets to bitcoin (BTC) futures contracts earlier this year, another behemoth, the Guggenheim Macro Opportunities Fund just raised the stakes by announcing its plans to allocate up to 10% of its net assets.
Guggenheim Funds Trust, controlled by global investment and advisory firm Guggenheim Partners LLC, has filed an amendment with the US Securities and Exchange Commission (SEC) via which it’s reserving the right for its USD 5.3bn Macro Opportunities Fund to gain exposure to the world’s number one cryptocurrency, by investing in the Grayscale Bitcoin Trust (GBTC). Grayscale is a major crypto asset management firm owned by Digital Currency Group (DCG).
The filing to the SEC stated that the Guggenheim Macro Opportunities Fund may seek investment exposure via its subsidiary to bitcoin indirectly through investing up to 10% of its net asset value in GBTC. “Except for its investment in GBTC, the Fund will not invest, directly or indirectly, in cryptocurrencies,” it added.
Their filing with the SEC is a request to invest up to 10% of their portfolio. A total of $500 million (27,700 BTC), which is 0.15% of the total minted supply. pic.twitter.com/7R1GwOKtE4
— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) November 29, 2020
To compare, in May this year, legendary hedge fund manager Paul Tudor Jones said that “over 1% […] maybe it’s almost 2%” of his assets are in bitcoin, which would mean an investment of around USD 210m. Also, MicroStrategy, a US-based major business intelligence company, recently bought over USD 400m worth of bitcoin, adding that more token purchases are in the pipelines.
As reported by Cryptonews.com in August, among the 20 institutional investors that invested in the GBTC’s shares, only two allocated more than 1% of their assets under management to these shares in order to gain exposure to the price movement of BTC.
Meanwhile, by planning to indirectly invest up to 10% of its net asset in BTC, Guggenheim Macro Opportunities Fund also demonstrates what they think of risks associated with exposure to bitcoin:
Their filing with the SEC describes the following risks:
- “The price of bitcoin could drop precipitously (including to zero) for a variety of reasons, including, but not limited to, regulatory changes, a crisis of confidence in the bitcoin network or a change in user preference to competing cryptocurrencies. The Fund’s exposure to cryptocurrency can result in substantial losses to the Fund,” they said.
- The Fund reminded its investors that the value of crypto is not backed by a government, corporation, or any other identified body, and that its value is determined by the supply and demand in the global market, which consists primarily of transactions on exchanges.
- And speaking of exchanges, the company said that these are “largely unregulated and may therefore be more exposed to fraud and failure”; they “can cease operating temporarily or even permanently” leading to a potential loss of users’ funds or other market disruptions; they may be more exposed to the risk of market manipulation than traditional exchanges; due to the lack of measures designed to prevent sudden drops in value, the prices may see “larger and more frequent sudden declines than assets traded on more traditional exchanges,” etc.
- If GBTC were to cease to trade at a premium to its net asset value (NAV), the value of the Fund’s investment in GBTC could decrease, even if the value of GBTC’s underlying holdings in bitcoin doesn’t. Also, since there will be operating expenses, if GBTC incurs expenses in USD, they would sell BTC to pay them, and a sale at a time of low bitcoin prices “could adversely affect the value of an investment in the Fund.”
- Another risk the filling mentioned is the “relatively limited use of cryptocurrency in the retail and commercial marketplace, which contributes to price volatility.” Crypto not expanding into retail and commercial markets, “may result in increased volatility or a reduction in the value of cryptocurrencies.” Furthermore, should market participants develop a preference for one crypto over another, “the value of the less preferred cryptocurrency would likely be adversely affected.”
- Among other risks, it mentioned that “many significant aspects of the US federal income tax treatment of investments in bitcoin are uncertain, that there ate cyber security incidents, as well as risks “associated with financial, economic, health, labor and other global market developments and disruptions,” which have been exasperated by the COVID-19 restrictions.
- “The Fund’s exposure to cryptocurrency may change over time and, accordingly, such exposure may not be represented in the Fund’s portfolio at any given time.[…F]uture regulatory actions or policies may limit, perhaps to a materially adverse extent, the value of the Fund’s indirect investment in cryptocurrency and the ability to exchange a cryptocurrency or utilize it for payments.”
By its own account, Guggenheim has over USD 295bn in assets under management across a platform of managed accounts and funds.
At pixel time (10:46 UTC), BTC trades at USD 18,562 and is up by 2.5% in a day, trimming its weekly losses to less than 1%. The price is up by 33% in a month and 152% in a year.
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