Hedge-fund star Mike Novogratz believes he a know it all when it comes it cryptocurrency. Novogratz, former billion-dollar money manager of Fortress, not only actively trades bitcoin but is also in the process of raising $500 million for a cryptocurrency hedge fund. Cryptocurrency allures investors with its unpredictability when the markets are slow.
The unpredictability of stocks in the S&P 500 Index in 2016 averaged around half of its level of 2008 and 2009. It is on target this month to reach a record low. This hits hedge funds hard since they depend on strong market moves to bring in the high returns. The Hedge Fund Research’s Fund Weighted Composite Index fell behind the S&P 500 by five percentage points during first eight months of 2017.
Since the start of the year, Bitcoin has climbed four times, notwithstanding a 34 percent drop in September. Novogratz claims that he has made enough money to purchase. According to Bloomberg, the crypto-fund that Novogratz plans to launch will invest in the likes of bitcoin, initial coin offerings (ICO) and related companies.
Novogratz doesn’t know it all though. There is not a direct way to short bitcoin. This would make it hard for a crypto-fund to hedge its holdings. Novogratz stated that the crypto-market is a massive bubble, entailing that he is relying solely on being a superior market-timer compared to others. But, Novogratz’s retirement resulted from the losses of shorting the Swiss franc to only see the currency then soar when the central bank unexpectedly discarded its peg for the euro.
Although cryptocurrencies do not depend upon centralized banks it does not lessen their volatility. Exchanges have been hacked which resulted in large losses and regulators from countries across the globe are starting to crack down. Although bitcoin has a perception of rarity, only 21 million can be mined, the potential for competitors is limitless. A wave of new digital coin offerings raised over $1.5 billion just this year alone.