- Hedge funds strengthened their Bitcoin portfolios during Monday’s market mayhem.
- FalconX research boss says investors bet Bitcoin will become digital gold.
- They swooped up cryptocurrencies as traders expect Bitcoin’s price to hit $100,000 by year’s end.
Institutional investors scooped up Bitcoin en masse during Monday’s market mayhem, in part because they bet on the cryptocurrency eventually living up to its reputation as digital gold.
That’s according to David Lawant, head of research at FalconX, who spoke with DL News after the crypto prime broker’s data showed that among its clients, 57% of proprietary trading desks, 63% of hedge funds, 61% of venture funds, and 72% of retail aggregators were looking to buy crypto on Monday.
They were particularly interested in Bitcoin.
“Usually when we are net buyers or net sellers, it’s like 52%, 53%,” Lawant said. “These are relatively lopsided flows. … It is also not common for us to see pretty much every investment persona in the same direction.”
He added that while many investors liquidated their crypto assets at the start of the week, those sell-offs happened because of short-term fears that “seem to be outweighed by the outlook in the medium term.”
The comments highlight a bullish sentiment among crypto industry stakeholders like Bitwise’s Chief Investment Officer Matt Hougan, who said the bloodbath was a huge opportunity in disguise.
And many traders are putting their money where their mouths are by clinging on to trades that will only pay off if Bitcoin hits the new record high of $100,000 before the end of the year.
The institutional players’ deals made this week rely in part on the oft-touted concept that the world’s largest cryptocurrency will become a safe haven asset, Lawant said.
“Bitcoin has a lot going for it,” he said. “The macroeconomic backdrop has been pretty interesting for Bitcoin in the sense that all the deeper things that Bitcoin was designed to to hedge against — they’re kind of realising.”
However, he said Bitcoin still has some ways to go before it becomes akin to gold.
Digital gold
Originally conceived as digital cash, Bitcoin is too volatile an asset to pay rent or buy coffee with — despite infamous stories about early adopters buying pizza with it.
Because of its finite supply, its proponents now believe it can serve the same role that gold often has throughout human history — a safe asset whose value holds steady, or even increases, amid market and geopolitical turmoil.
Those hopes have yet to materialise.
“Bitcoin is like gold, but perhaps more like gold in the ‘70s than gold now,” Lawant said.
The 1970s marked the end of the Bretton Woods gold standard, meaning the US dollar could no longer be exchanged for a fixed quantity of gold.
It was unbacked — fiat currency, a change welcomed by many economists but used derisively today by Bitcoin proponents.
“It was the first time that the market was thinking about a non-sovereign monetary asset, and what the role of that commodity would be in a world of pure fiat currencies,” Lawant said.
“Which is what we achieved in 1971. If you look at the gold price, then you’re going to see an uptrend, but it’s going to be extremely volatile, with massive draw downs. Gold went up 20 times in that period, but there were a number of very sharp corrections.”
Lawant isn’t the only one to have made the analogy: Billionaire hedge fund manager Paul Tudor Jones has also said Bitcoin reminds him of gold in the 1970s.
Bitcoin’s overall share of the crypto market — a concept called “Bitcoin dominance” by the industry — has been increasing since October.
As of Thursday, it was at 57.5%, a three-year high.
Aleks Gilbert is a DeFi Correspondent at DL News. Got a tip? Email at aleks@dlnews.com.
