Cryptocurrencies are worthless, says the world’s largest listed hedge fund manager

Key Takeaways

• Luke Ellis says digital currencies have no value beyond trading.
• The largest hedge fund in the world compared cryptocurrency markets to Tulipomania.
• Traditional hedge funds share Ellis’s views, PwC report suggests.

YEREVAN (CoinChapter.com) — The CEO of Man Group states digital currencies are just another “tulip mania.” Despite his disbelief in the value of crypto, the hedge fund continues investing in the market.

On July 26, 2021, in an interview with Financial Times, Luke Ellis of Man Group spoke on cryptocurrencies. He shares the opinions of many conservative specialists who think that the digital currencies market is an overextended bubble.

Luke Ellis on cryptocurrencies

“If you look at cryptocurrencies as a whole, it is a pure trading instrument. There is no inherent worth in it whatsoever. It is a tulip bulb,”

The tulipomania refers to an alleged tulip bubble in the 1630s. Tulips suddenly became popular in Dutch society for no apparent reason and slowly grew to become a speculative commodity market. Tulip bulbs were trading at the price of gold while more and more people got involved.

When the bubble burst, the Dutch experienced a massive setback in the economy, Investopedia explains. Even though the credibility of this story is under dispute, the idea is clear. The CEO of the largest trader in the world thinks that the cryptocurrency market is bound to collapse.

Despite this opinion, they continue to invest here among thousands of other markets because digital currencies fluctuate more and give higher returns. Yet, these trades are not considered “asset management.”

Related: BNB explodes 14.06% despite hedge funds’ withdrawal from Binance

The issue is not the underlying technology itself, though. It can be used to improve the financial system, not replace it entirely with coins.

Ellis reasons that there is no regulation of liquidity in the market. Therefore, anyone can decide to release cryptos; hence, there is no central body to tame inflation. 

Back in March, the CEO expressed the same opinion and added that businesses should not include Bitcoin in their balance sheet. Considering the riskiness of the digital asset, buying crypto would threaten the stability of a company’s cash balance, Nasdaq reported.

"I see it as a trading instrument, not a thing that you think of as a long term asset allocation play," says MAN Group's Luke Ellis on #bitcoin. "It's confusing what the business is relative to speculation. I don't think companies are supposed to speculate with cash balances." pic.twitter.com/ILnbwxICKU

— Squawk Box (@SquawkCNBC) March 12, 2021

Do all hedge funds share this view?

While numerous crypto hedge funds have emerged in the last decade, the comparable market sentiment lies in traditional hedge fund opinions. According to the PwC 3rd Annual Crypto Hedge Fund report, around 20% of native hedge funds invest in crypto.

Also read: Bitcoin blasts towards $40K on Amazon adoption row

Meanwhile, 64% of respondents said they would start/accelerate their involvement in digital currencies if governments lifted regulatory barriers. Below is the breakdown of why the remaining firms do not plan to invest in digital assets.

Among the reasons why funds invest, the most prominent (57%) was to achieve diversification. 29% answered that their purpose was exposure to a new value-creation ecosystem, while about 14% aimed at hedging against inflation.

The traditional hedge fund community, thus, shares the opinion of Ellis in a way, with the diversification goal being at the top. However, it is crucial to consider that almost a third of investors believed in the underlying value of cryptos.

Luke Ellis’s opinion serves the argument that digital currencies do not have collateral nor a central distributing body to regulate “irrational” price changes. The response to this among defenders of crypto is usually that digital currencies do have value. It stands in their underlying blockchain technology and multifunctionality, above and beyond what fiat currencies offer even.