Written by Citywire

January, 2021

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Ruffer nets £320m+ profit in two month bitcoin trade

Ruffer has bagged a profit of up to £693m from bitcoin, less than two months after buying into the cryptocurrency in November.

Bitcoin’s stunning bull run has continued through the end of 2020 into the start of this year as its surged beyond $34,000 for the first time at the weekend.

Although it fell back to around $29,500 this morning, following a swift 13% correction, the price had climbed back to $31,00 at the time of writing, meaning Ruffer is still firmly quids in.

The investment manager revealed last month that it had initiated a £550m position in November, although it did not disclose the price it paid for the digital currency. Bitcoin was trading at $13,712 on 1 November and it closed the month at $19,441 on 30 November. Depending on when the fund house bought bitcoin, this has given it a paper profit of between £327m and £693m.

The investment company said it bought bitcoin to diversify the portion of its portfolio which hedges against wider market risks, after taking some profits on gold. This is held across a number of its portfolios, including its listed Ruffer Investment Company vehicle, and represented 2.5% of the business’ total assets under management.

‘We see this as a small but potent insurance policy against the continuing devaluation of the world’s major currencies,’ Ruffer explained. ‘Bitcoin diversifies the company’s (much larger) investments in gold and inflation-linked bonds, and acts as a hedge to some of the monetary and market risks that we see.’ 

The cryptocurrency was one of the investment stories of last year. It started 2020 at $7,200, before dipping to $5,000 in the March sell-off, before rallying to $20,000 by December.

It ended the year 303% higher, smashing returns on mainstream asset classes, with the S&P500 rising 16% in 2020 and gold gaining 25%.

It has continued to make fresh all-time highs in January, far surpassing the $19,000 it reached after the last bull-run in 2017.

Data analytics firm GlobalData noted that changing monetary policies, rising inflation and the impact of Covid-19 had shifted investors’ focus towards alternative assets classes such as cryptocurrencies.

The digital currency’s growing appeal to institutional investors has left GlobalData principal disruptive tech analyst Kiran Raja believing the rally has far more substance this time.

‘Unlike bitcoin’s previous surge in 2017, which was driven by the hype among retail investors, the latest increase is a result of institutional investors, public companies, major banks and payment companies turning their investment focus to digital assets like cryptocurrency,’ Raja said.

Bitcoin has also been boosted recently by online payments company PayPal’s decision to introduce a new service, allowing its customers to buy, sell, hold and accept cryptocurrencies.

In a note published at the end of last year, senior Citibank analyst Thomas Fitzpatrick predicted bitcoin could hit $318,000 by the end of 2021, describing the virtual currency as the ‘gold of the 21st century’.

Fitzpatrick described bitcoin’s rise as ‘very reminiscent’ of the 1970s gold market, where the precious metal experienced 50 years stuck in the $20-$35 price range, before breaking out after a change in fiscal policy by the Nixon administration in 1971.

‘Gold has restrictions such as storage, non-portable, and could possibly be even called “yesterday’s news” in terms of a financial hedge,’ Fitzpatrick added.

However, Brian Armstrong, the chief executive of America’s biggest cryptocurrency exchange Coinbase, warned on the mania surrounding bitcoin in a blog published just before Christmas.

‘We cannot emphasise enough how important it is to understand that investing in crypto is not without risk,’ Armstrong wrote.

‘We caution investors who may be focusing on short-term speculation and encourage customers to seek out resources and consult financial advisers to better understand the risks associated with investing in cryptocurrencies.’ 

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