Are Bitcoin Whales Back?

Bitcoin whales are making a comeback. One River Asset Management, a hedge fund specializing in volatility bets, has amassed substantial holdings and commitments, worth about $1 billion by 2021, in Bitcoin (BTCUSD) and Ether (ETHUSD), according to a report by Bloomberg.

Eric Peters, the firm's founder, told the publication that he intends to set up a "blue-chip fiduciary" for cryptocurrencies targeted at institutional investors. The hedge fund has partnered with Northern Trust Corporation (NTRS), which recently announced a partnership with Standard Chartered PLC (SCBFF), for custody and with San Francisco-based exchange Coinbase for trade execution.

Key Takeaways

  • A hedge fund specializing in volatility bets has amassed holdings worth more than $1 billion in Bitcoin and Ether.
  • Other institutional investors and hedge funds are also buying up large holdings of Bitcoin, turning themselves into whales.

Peters is not the only one building holdings in Bitcoin. One of his investors, London-based investment firm Ruffer LLP, disclosed a 2.5% holding of Bitcoin in its Ruffer Multi-Strategies Fund recently. The holding was worth approximately $740 million as of last week.

"We see this as a small but potent insurance policy against the continuing devaluation of the world's major currencies," Ruffer LLP wrote in a memo. The firm described Bitcoin as a "hedge to some of the monetary and market risks that we see."

The term Bitcoin whales refers to institutions or individuals with large holdings of Bitcoin, significant enough to influence the cryptocurrency's price trajectory. For example, some blame the 2017 bull run in crypto markets on Bitcoin whales, who are supposed to have led and then exited the trades after booking profits.

Because Bitcoin is a pseudonymous asset in which owners are identified by their assets, it is difficult to accurately identify the cryptocurrency's biggest holders. However, according to btc.com, 13.5% of Bitcoin owners hold 10,000 or more units of the cryptocurrency, amounting to approximately 2.5 million Bitcoin in total. One River and Ruffer LLP's investments fall in this category. About 18.5 million Bitcoin have been mined so far, and the total number is supposed to cap at 21 million. 

Why Are Firms Investing in Bitcoin? 

Both One River and Ruffer LLP cited macroeconomic risks arising from the current economic crisis as reasons for their investment in cryptocurrencies. It also helps that Bitcoin's price has been on a tear recently, setting new all-time high records.

The unchecked fiscal spending by central banks has debased national currencies and could cause inflation, according to Peters from One River. Low interest rates on bonds and other savings instruments have further exacerbated the situation by closing off other investment avenues.

Bitcoin's capped supply and appreciating price has the potential to act as an alternate hedge instrument for investors comfortable with volatility. Peters has joined the ranks of Bitcoin enthusiasts and said that the current situation will result in a "generational allocation to this new asset class." According to the hedge fund founder, "The flows have only just begun."