Man Group sees bitcoin volatility as part of the asset’s “price discovery” process

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As more hedge fund firms pile into the digital asset and cryptocurrency space, analysts at the London-listed hedge fund giant Man Group say bitcoin’s recent volatility could be seen as “price discovery” in a new asset class, which will ultimately give way to greater stability in the currency, and more credibility among investors.

After a sustained surge which saw it reach a record high of USD41,000, bitcoin plummeted by more than 25 per cent earlier this week – its biggest collapse since March last year. Before the fall, the asset – considered the world’s foremost cryptocurrency – surged some 833 per cent over the past year, Man noted in its ‘Views From The Floor’ commentary.

In Tuesday’s note, Man Solutions analyst Henry Neville said bitcoin has completed four bubbles in under ten years, observing how “every time a bitcoin bubble bursts, another grows back to replace it.”

But drawing comparisons to previous major financial bubbles in history – including US rail stocks (1923-1932); oil (1973-1986); US real estate (2000-2009); and US financials (2002-2009) – Neville suggested the frequency of bitcoin’s rallies make its narrative “somewhat atypical relative to the great bubbles of the past”, and instead invites alternative conclusions.

“Instead of considering each individual spike and fall as a discrete bubble, there may be more merit in the argument that this volatility is simply part of the price discovery in a new asset class, and that these are not bubbles, but part of a not-so-random walk that will eventually dwindle to give bitcoin more stability, and ultimately, legitimacy,” he added.

The comments come after the UK’s Financial Conduct Authority moved to warn that consumers investing in crypto assets “should be prepared to lose all their money.” The FCA said on Monday there is significant price volatility and product complexity in the asset class, and suggested it can be difficult to price reliably.

The boom in cryptocurrencies and digital asset technology has brought eye-catching gains to hedge funds over the past 12 months. Hedge Fund Research’s Blockchain Composite Index soared to a 190.1 per cent return in 2020.

Earlier this month, Anthony Scaramucci’s SkyBridge Capital became the latest high-profile hedge fund firm to step into the crypto arena - following the likes of Paul Tudor-Jones, Michael Novogratz and Lee Robinson – with the launch of the SkyBridge Bitcoin Fund.

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Hugh Leask
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