POLARIZING VIEWPOINTS DRIVES CRYPTO NARRATIVE
The bombardment of opposing viewpoints in the crypto space often culminates in hyper sensationalism from digital asset commentary as well as a denial from traditional financial managers. The truth is both sides have valid viewpoints, it just depends how you choose to interpret it. In this past weeks Delivering Alpha conference hedge fund titan Ken Griffin gives his perspectives on the crypto market.
HEDGE FUND TITAN- KEN GRIFFIN
In an interview with CNBC Ken Griffin, founder and CEO of CITADEL in Chicago, reiterated his bearish stance on the usefulness of cryptocurrency. Griffin stated that “there is no need for cryptocurrencies from my perspective, they are a solution in search of a problem from my perspective”. Citadel has discussed whether or not to make markets in the crypto space but ultimately decided against it as Griffin commented “I have a hard time finding myself wanting to be in a position for being a liquidity provider for a product I don’t believe in.” From a business standpoint it does not make sense for traditional asset managers such as Citadel to waste resources trying to enter an immature crypto market. With an established fund management strategy as well as a strong market making business providing liquidity for 20% of the traded equity volume in the U.S., digital assets simply are not a large enough market given the volatility and lack of regulatory structure for it to make sense for Citadel to do business in. In the interview Griffin further stated that “I still scratch my head about bitcoin” admitting he does not understand virtual economies or how it would be profitable to Citadel’s current business model. Griffin’s main rule for investing has always been to have a deep expertise in the area in which he is investing and with Citadel’s funds having returned 19% in 2017 and is currently up 8.79% in the first half of 2018 it is likely Griffin will continue to focus on the markets he has expertise in, which is certainly not in the digital asset economy.
Even if Griffin is not ready to accept virtual economies or digital assets, George Soros, an early bitcoin detractor, has recently changed his stance as Soros Fund Management has approved trading in virtual financial assets. Furthermore, Andressen Horowitz has begun to make significant strides into the sector with their 300 million dollar crypto fund focusing on providing capital to build out the infrastructure of virtual financial assets. Two companies whose goal is to help merge the traditional finance and digital asset world is Coinbase and Seed CX, both of which will operate alongside Citadel in Chicago, by providing liquidity for institutional trading and settlement. As the search for alpha continues it is likely that 2018 will be a year where more institutional funds will flow into the digital asset economy. In a recent report from Cryptofundresearch.com institutional crypto assets under management was $5.34 billion as of March 1st, 2018 slightly down from its peak of $5.86 at the start of the year. Security, infrastructure and regulatory oversight will continue to be a main theme throughout the second half of the year.