Bitcoin and other cryptocurrencies have not enjoyed a solid reputation as a 'stable' asset class, or even as an asset at all. Warren Buffett's right-hand man Charlie Munger even famously referred to bitcoin as worthless, artificial gold, rat poison and, er.. excrement.
Even though cryptocurrencies have been around for more than a decade (with the past few years pushing them into the mainstream), they remain outside the realm of conventional ASX investing vehicles like managed and exchange-traded funds (ETFs). Possibly hindering this elevation is the infamous volatility of the cryptocurrency scene, as well as controversy arising from the decentralised, stateless nature of the assets themselves.
However, we could be seeing a turning point in this orthodoxy.
Bitconnect?
According to reporting in the Australian Financial Review (AFR), the head of bond, income and defensive strategies at ASX fund manager Pendal Group Ltd (ASX: PDL), Vimal Gor, is increasingly bullish on cryptos and bitcoin in particular.
The AFR reports that Mr. Gor now has active positions in bitcoin futures on the Chicago Mercantile Exchange, quoting Mr. Gor on the reasons for this move:
There are over 7000 cryptocurrencies in the world. We are only looking at one, which is bitcoin… It has a futures contract so even though it's a new asset, the way it trades is like any other asset. To buy bitcoin, you don't have to be part of the tinfoil hat brigade… All the big hitters in the hedge fund world are coming out to endorse bitcoin now; it is entering the realm of the mainstream.
Bitcoin comes out of the woodwork
But Mr. Gor is not the only fund manager coming out in support of the cryptocurrency. The AFR quotes 2 other fund managers, Stan Druckenmiller and Paul Tudor Jones, on the matter.
Mr. Druckenmiller stated: "I have warmed up to the fact that bitcoin could be an asset class that has a lot of attraction as a store of value to Millennials."
Mr. Tudor Jones agrees: "I'm not a bitcoin flag bearer but bitcoin has this enormous contingent of really smart, sophisticated people who believe in it. You have a crowd of people who are dedicated to seeing bitcoin succeed in it becoming a store of value".
But it's not just the 'mainstreaming' of cryptocurrency as a separate asset class that's attracting Pendal to bitcoin, it's also the shrinking effectiveness of alternative asset classes thanks to quantitative easing. Mr Gor told the AFR as much:
We think ultimately that government bonds will turn into a dead asset class, so we now have to imagine what it will be like for other assets classes when bonds are no longer relevant to hold in a portfolio… obviously commodities and cryptocurrencies have a part to play in the answer… Bitcoin is a cockroach that exists. They can't ban it out of existence.
