With a price rally of up to 180% so far in 2017, Bitcoin is one of the highest flying assets available today. The cryptocurrency has repeatedly hit milestone after milestone when it comes to price point, and it reached a fresh record price just last week. And yet, in spite of the stellar performance for this hot commodity, hedge funds across the United States have generally been reluctant to enter into investments in Bitcoin. Why might that be? And does it have implications for whether or not everyday investors should be hesitant as well?

Hedge Funds Seem to be a Perfect Investor for Bitcoin

By some metrics, hedge funds should be especially eager to invest in Bitcoin. The firms enjoy loose supervision compared to other types of asset management companies, and their client bases are typically more willing to trust managers when they take on a risky alternative source of profits. Hedge funds often take on new and surprising investment opportunities. Still, Bitcoin has not been a winner among hedge funds so far.

According to a report by CNBC, one reason for this could be lack of knowledge and confidence in the new commodity. The report cited a 16-year hedge fund manager who remained anonymous but indicated that he or she "just [doesn't] know enough about it." It appears that this sentiment is a common one across hedge fund decisionmakers. Beyond that, some managers have suggested that their funds' own strict guidelines for investments were prohibitive when it came to the possibility of Bitcoin at this point.

Volatility, Security Top the List of Concerns

Beyond these initial concerns, hedge funds seem to be uncertain about the security and volatiity of Bitcoin as an asset class. Louis Gargour of LNG Capital said that "Bitcoin's extreme volatility doesn't sit well with managers working on a risk-adjusted return basis. Furthermore, there are valid concerns that digital currency assets can be hacked or stolen." Together, these concerns have driven some managers away from possible investments. Ultimately, these managers must answer to their clients, and clients are often skittish when there is reason to think that their assets may not be fully secure.

So what will need to change before hedge funds look to Bitcoin as a more viable option? One major way to improve Bitcoin's position would be for major banks around the world to provide services like settlement for Bitcoin and other digital currencies. The pace at which this is happening has not impeded some early investors, including Cameron and Tyler Winklevoss, from attempting to gain approval for a Bitcoin ETF. Regardless of the position of the individual manager, it is clear that Bitcoin is continuing to grow in overall importance in the investing world.

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