4 Reasons Paul Tudor Jones’ 5% Bitcoin Exposure Advice Is Difficult for Large Funds


In an interview with CNBC on June 14th, legendary investor Paul Tudor Jones sounded the alarm about advancing inflation. After last week’s consumer price index (CPI) report showed that inflation had reached a 13-year high in the US, the founder of Tudor Investment advocated a portfolio allocation of 5% Bitcoin (BTC).

Mutual Funds Companies by Assets Under Management, USD. Source: MutualFundDirectory.org

Collectively, the world’s 50 largest wealth managers manage $ 78.9 trillion in funds. A 1% investment in cryptocurrencies would add up to $ 789 billion, which is more than Bitcoin’s total market cap of $ 723 billion.

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However, there is a fundamental misconception about how this industry works and this prevents a 1% allocation, let alone a 5% allocation.

Let’s examine some major hurdles the traditional financial sector must overcome before it really becomes a bitcoin monkey.

Obstacle 1: Perceived Risk

Investing in Bitcoin remains a significant hurdle for large mutual fund managers, especially given their perceived risk. On June 11, the U.S. Securities and Exchange Commission (SEC) protect investors from the risks of trading Bitcoin futures – citing market volatility, lack of regulation and fraud.

Although several stocks and commodities have similar or even higher 90-day volatility, the agency’s focus somehow remains on Bitcoin.

DoorDash (DASH), a $ 49 billion US company, has a volatility of 96% versus 90% for Bitcoin. Palantir Technologies (PLTR), a US technology stock valued at $ 44 billion, has a volatility of 87%.

Hurdle 2: Indirect exposure is nearly impossible for US companies

Most of the mutual fund industry, mostly the multi-billion dollar asset managers, cannot buy physical bitcoins. There’s nothing special about this asset class, but most pension funds and 401k vehicles don’t allow direct investments in physical gold, art, or farmland.

However, it is possible to bypass these restrictions with Exchange Traded Funds (ETFs), Exchange Traded Notes (ETN) and tradable mutual funds. Cointelegraph previously explained the differences and risks associated with ETFs and trusts, but that only scratches the surface as each fund has its own rules and limits.

Obstacle 3: Fund regulation and administrators can prevent BTC purchases

While the fund manager has complete control over investment decisions, it must follow any specific vehicle regulation and comply with the risk controls imposed by the fund administrator. Adding new instruments such as CME Bitcoin futures may require SEC approval. Renaissance Capital’s Medallion funds faced this issue in April 2020.

Those who choose CME Bitcoin futures, like Tudor Investment, have to keep extending the position before the monthly expiration. This problem poses both liquidity risk and error tracking of the underlying asset. Futures were not designed for long-term carry and their prices are very different from regular spot exchanges.

Hurdle 4: The traditional banking industry remains a conflict of interest

Banks play an important role in this area as JPMorgan, Merrill Lynch, BNP Paribas, UBS, Goldman Sachs and Citi are among the world’s largest mutual fund managers.

The relationship with the remaining asset managers is close as banks are relevant investors and distributors of these independent investment funds. This interdependence continues because the same financial conglomerates dominate stock and bond offerings, that is, they ultimately decide on the allocation of mutual funds in such deals.

While Bitcoin is not yet a direct threat to these industry mammoths, a lack of understanding and risk aversion, including regulatory uncertainties, is causing most of the $ 100 trillion professional fund managers to avoid the stress of moving into a new asset class to dare.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.