Ruffer’s comments on bitcoin in its Investment Review make for interesting reading.

In its six-month review for the period ended December 31, 2020, British investment management firm Ruffer threw light on its investments in bitcoin. Interestingly, it has positioned the cryptocurrency as an “anti-asset” within its portfolio, calling it a diversifier. (Ruffer Investment Co)

Rationale

“Our job is to construct a portfolio for the Company which will protect and grow our investors’ capital in a wide variety of market scenarios. Constructing a genuinely diversified portfolio has never been more challenging. But the results from this year, where we have experienced the full spectrum of market scenarios, are encouraging. On the protective side, we have exposure to anti-assets like credit default swaps, index-linked bonds, gold, bitcoin, or expressions of volatility. These are assets which, in isolation, may make traditional investors uncomfortable, but through the prism of the whole portfolio can be true diversifiers.” [Emphasis added]

Elsewhere in its report, Ruffer said bitcoin was an “unconventional protection,” and “an idiosyncratic asset class.”

Ruffer’s highly profitable bitcoin investment

Though merely a “diversifier,” bitcoin has proved lucrative for Ruffer.

“We gained our bitcoin exposure via the Ruffer Multi Strategies Fund and two proxy equities in Microstrategy and Galaxy Digital,” the firm wrote. “At the period end, the combined exposure of these was just over 3%. In the short period since investing both stocks are up more than 100% and bitcoin is up 90%.”

Ruffer bought bitcoin in November as a hedge.  It feared potential risks from “a fragile monetary system and distorted financial markets.”

Ruffer’s exposure to bitcoin was then around £550m, equivalent to around 2.7% of the firm’s assets under management.

Ruffer and bitcoin – profitable portfolio protection

• “Due to zero interest rates the investment world is desperate for new safe-havens and uncorrelated assets.”
• “Think of bitcoin’s bad reputation as a risk premium. As we move through the process of normalization, regulation, and institutionalization, the compression of this premium can have a dramatic effect on the price.”
• “If we are wrong, bitcoin will return to the shadows and we will lose money. This explains why we have kept the position size small but meaningful.”

Bitcoin – the sky is the limit

“We think we are relatively early to this, at the foothills of a long trend of institutional adoption and financialization of bitcoin,” Ruffer said.

Related Story:  Bitcoin Scales $20K; Ruffer UK Bought £550M Of Bitcoin In November