Paul Tudor Jones II has become a big fan of bitcoin.
The legendary macro investor told investors he is integrating the crypto currency into Tudor Investment Corp.’s flagship hedge fund, Tudor BVI.
“The most compelling argument for owning Bitcoin is the coming digitization of currency everywhere, accelerated by Covid-19,” stated a recent letter signed by Jones and Lorenzo Giorgianni, managing director and global head of research, and obtained by Institutional Investor.
The move is part of Jones’ strategy for investing in what he is anticipating to be a coming hyperinflation environment throughout the world, caused by the massive global fiscal spending in response to the worldwide economic collapse from Covid-19.
“We are witnessing the Great Monetary Inflation (GMI) — an unprecedented expansion of every form of money unlike anything the developed world has ever seen,” Jones proclaimed in the ten-page letter.
Jones said there will be many asset classes that will move as a result of this money creation — and one of them will be bitcoin. In the letter Jones said his firm has updated the offering memoranda for Tudor BVI to disclose that it may trade bitcoin futures.
It has set the initial maximum exposure guideline for purchasing bitcoin futures to a low-single-digit exposure percentage of the fund’s net assets, which Jones said “seems prudent.”
“We will review this exposure guideline regularly,” the letter added.
Tudor BVI rose a little less than 6 percent for the first four months of the year after posting a 0.7 percent gain in April, according to a document from investment bank HSBC that reports hedge fund returns. Last year it gained a little more than 11 percent.
Tudor Momentum Fund, a computer-driven trend-following fund, lost 6.4 percent for the first four months of the year, according to a private database.
The firm declined to comment.
Jones stressed in the letter he is not “a hard-money nor a crypto nut.”
“I am not a millennial investing in cryptocurrency, which is very popular in that generation, but a baby boomer who wants to capture the opportunity set while protecting my capital in ever-changing environments,” he added.
However, he said in 2017 that he had “a tiny amount” of bitcoin in his personal account for fun.
“Amazingly, I doubled my money and got out near the top when it was apparent to any market technician we were blowing off,” he added.
Jones stressed that the “great monetary inflation” inspired him to revisit Bitcoin.
He explained that the key to the price of Bitcoin is how many more people will own it beyond the current 60 million who currently own it.
Jones pointed out that probable introduction of Facebook’s Libra — whose value Jones said will be pegged to the U.S. dollar — and China’s DCEP, tied to the yuan, will make virtual digital wallets a commonplace tool for the world.
“It will make the understanding, utility, and ease of ownership of Bitcoin a much more commonplace option than it is today,” the Tudor letter added.
“I am not an advocate of bitcoin ownership in isolation, but do recognize its potential in a period when we have the most unorthodox economic policies in modern history,” the letter said. “So, we need to adapt our investment strategy.”
Jones added that bitcoin reminds him of gold when he first got into the business in 1976.
He recalled that gold had just been “productized” as a futures instrument — like bitcoin recently — and had almost tripled in price. He said it then dropped by nearly 50 percent over nearly two years, similar to Bitcoin’s 28-month, 80 percent correction. In a chart he illustrated the similarities.
He said gold wound up being a tremendous buying opportunity, more than quadrupling the prior highs.
In making the case for bitcoin now, Jones noted that it actually ranked fourth among nine assets that he asserted had at one time or another worked well in reflationary periods.
The “clear winner” is gold, he said.
“In a low-carry world, gold remains a very attractive hedge against the Great Monetary Inflation and hedges against other risks clouding the outlook, including a renewed flare up in the China-U.S. relationship where financial sanctions could eventually be used in a brute-force decoupling,” the letter elaborated.
How high can gold rise from its current price of slightly under $1,700?
He said a simple metric suggests it could rise to 2,400 “before it reaches valuations consistent with the lowest of the last three peaks in this valuation metric.”
It could surge to 6,700 “if we went back to the 1980 extremes,” he added.
Jones made yet another prediction in the letter: “One thing is for sure, these are going to be incredibly interesting times,” he said.
