Ruffer defends bitcoin holding amid FCA warnings on cryptocurrency

‘Think of bitcoin’s bad reputation as a risk premium’

Bitcoin against a backdrop of the British flag and £20 notes
Photo by Ewan Kennedy on Unsplash


Ruffer has committed to investing in bitcoin as a long-term uncorrelated portfolio hedge, despite a recent Financial Conduct Authority warning that investors in the cryptocurrency stand to lose all their money.

In November last year, the group invested 2% in bitcoin, worth about £550m. In a trading update for the Ruffer Investment Company, published on Monday, it said exposure was gained via the Ruffer Multi Strategies fund and two proxy equities, Microstrategy and Galaxy Digital.

At the end of December, Ruffer said the combined exposure of these was just over 3% and both stocks were up more than 100%, with bitcoin up 90%. On 16 December bitcoin broke through the $20,000 barrier for the first time and closed the year out at $29,000.

By 8 January the price was at $40,675, but last week the cryptocurrency lost 20% in less than 24 hours, prompting the FCA to warn investors they “should be prepared to lose all of their money”. On Monday the price was at $35,925.

‘At the foothills of a long trend of institutional adoption and financialisation’

In the trading update, Ruffer said it has “a history of using unconventional protections in our portfolio”, citing bitcoin as an example of “a small allocation to an idiosyncratic asset class which we think brings something significantly different to the portfolio”.

“Due to zero interest rates the investment world is desperate for new safe-havens and uncorrelated assets. We think we are relatively early to this, at the foothills of a long trend of institutional adoption and financialisation of bitcoin,” it said.

“Think of bitcoin’s bad reputation as a risk premium – as we move through the process of normalisation, regulation, and institutionalisation, 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 is among the protective assets 

Ruffer counts its exposure to bitcoin among its protective assets like credit default swaps, index-linked bonds, gold, 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,” it said.

The Ruffer Investment Company delivered a net asset value return of 6.4% over the last six months of 2020, while its share price return was 9.1%.

For the 2020 calendar year, the share price return was 17% and the NAV return was 13.5%, although unaudited interim financial statements for the period ended 31 December 2020 are due to be released before the end of March .

The trust was trading at a 0.9% premium at the end of the year, compared with a 3.5% discount the year before.


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