December 13, 2017 9:31 pm JST

Bitcoin investing set to get even more interesting

Funds that have enjoyed the cryptocurrency's rise can now bet against it

AKIRA KON, NQN senior staff writer

© Reuters

TOKYO -- Hedge funds are flocking to bitcoin, impressed by the cryptocurrency's big leap in value this year.

But recently they gained a new tool that allows them to bet that the crytocurrency will not be able to maintain its remarkable momentum.

The new tool is bitcoin futures trading.

Since August, hedge funds managing anywhere from $100 million to $250 million worth of assets have raked in outstanding profits, according to Eurekahedge, a Singapore-based research firm specializing in hedge funds. During August alone, they logged profits roughly six times those of their peers managing more than $1 billion worth of assets.

The explanation could have to do with bitcoin. Bitcoin Cash, a hardfork of bitcoin that was spawned on Aug. 1, brought initial confusion. But both cryptocurrencies quickly doused that and accelerated in value. Expecting the two digital currencies to keep rising in value, small and midsize hedge funds have aggressively added them to their portfolios, analysts say.

The tsunami continues to roll, with bitcoin's value swelling to more than $17,000 at one point, up a whopping 1,700% from the start of this year.

But the new futures market could interrupt the steady rise. Before futures trading began, everyone putting money into bitcoin was essentially taking a long position. That is, they were betting the virtual asset's value would rise.

Now that futures trading is available, investors will be able to short bitcoin. That is, they will be able to bet that it will lose value.

Let us throw another investment term at you -- risk comfort level. It varies by investor. But for funds that have been comfortable taking on high risk, which can allow for fat yields, bitcoin has been golden.

Bitcoin futures trading began earlier this week in Chicago. Now Nasdaq is reportedly planning to jump into the game. These exchanges are essentially creating the potential to absorb huge amounts of cash from hedge funds.

If hedge funds take advantage of this new tool -- if they are true to their name and begin hedging their bitcoin bets -- demand for the digital currency and its value are expected to ebb and flow much like the demand for and value of fiat currencies, rather than shoot straight up like they have this year.

The 2018 bitcoin chart, then, could look significantly different than the 2017 chart.

Regardless of whether the coin bubble implodes, hedge fund participation in futures trading is expected to help improve the health of this burgeoning market, one so far dominated by investors who have no investment theory other than being wowed by that remarkable momentum.

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