I made £1bn from Bitcoin – red flags to watch out for and best time to invest your cash
A BITCOIN investor who made £1billion from the cryptocurrency has given his top tips for investing your cash and the red flags you need to be aware of.
In recent years Bitcoin has proved to be highly volatile.
After hitting a peak two years ago when a ‘coin’ was valued at $70,000 each, it crashed to just $15,000 a year later but has since doubled and is valued at $43,000 now.
Charlie Morris, of ByteTree Asset Management has decades of experience running large multi-asset portfolios, says one of the positives of Bitcoin is due to its scarcity.
The creation of new Bitcoins is constrained making it difficult to create due to the computer code that underpins the digital currency.
Morris said: “Limited supply is important for alternative assets because if you could print it ad infinitum, it would be worthless.”
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Currently, there are 19.5million Bitcoins in circulation out of a total possible number capped at 21m.
So almost 92 per cent of all Bitcoins that can every exist are already in circulation.
The computer code currently limits the number of new Bitcoins created each year to 1.8 per cent of the existing total but due to the algorithm known as “halving” that will drop to 0.9 per cent a year in April.
So supply is scarce but to also keep the price high, demand has to outpace supply.
Morris said: “The bottom line is that demand for Bitcoin is permanent.
“There was liquidity – people were able to sell – through the various bear markets Bitcoin has already experienced, whereas it disappeared in other parts of the cryptocurrency market. Will demand grow?
“Until more professional investors own it in their portfolios, until other investors do, there is the scope for growth.”
The rise of artificial intelligence (AI) has also benefitted Bitcoin, according to Morris.
He claims that soon AI will be able to initiate transactions by itself, without human involvement, and when that happens “there will be no room for normal banks because there will have to be better technology – we’ll need a form of money that’s able to deal with computers”.
Bitcoin could be the obvious solution.
Due to the economic cycle of Bitcoin, Morris predicts the price of Bitcoin will average around $100,000 compared to $30,000 over the previous cycle.
He said: “Bitcoin tends to do well in the year before a halving and in the year after one.”
Falling interest rates should also help the cryptocurrency because anyone investing has less to lose in interest if they choose to put their money into Bitcoin rather than cash savings.
“Bitcoin always comes back stronger,” Morris said. “The bear market is over, the cycle has turned. Bitcoin is the king of crypto and is going to be a bigger part of portfolios.”
While Morris has a positive outlook for the future of Bitcoin, not everyone is quite so bullish.
Investment manager Duncan MacInnes, persuaded his colleagues at Ruffer, to invest 2 per cent of their portfolios in Bitcoin in 2021.
“I have never believed in anything so much. We invested during the pandemic and it was the perfect asset for that moment.
“Trust in institutions was failing, interest rates were zero and everyone was at home [looking for investment opportunities on their computers].”
He thinks that 15 years after its invention the cryptocurrency has lost its way and he is “not sure what Bitcoin is for”.
MacInnes said: “It’s not suitable as a payment tool, it has failed as a hedge against the recent bout of inflation and the context has changed so much.
“Money printing via quantitative easing has gone into reverse and the market is less obsessed with technology across the board.”
He added: “So much money was poured into cryptocurrency by venture capitalists and so many intelligent people got involved yet it’s hard to point to any concrete results of all that money and effort and now there are new things to be excited about such as AI.
“At about the time Ruffer invested people were talking about a wall of institutional money going into Bitcoin, but it didn’t happen.
"If a true Bitcoin ETF had been launched then, it would have attracted huge amounts of money.
"But now I don’t think anyone cares, I don’t think there is pent-up demand. And I think I can prove that.”
He pointed to the American investment fund Grayscale Bitcoin Trust that owns Bitcoin and whose managers were instrumental in overturning the refusal of US regulators to authorise Bitcoin ETFs.
MacInnes said: “In 2020 Grayscale was trading at a premium of 20 per cent but that discount gave way to a double-digit discount.
“Why would you invest in an ETF and by doing so pay the full price for the Bitcoin it holds if you can buy it at a discount via Grayscale? That discount showed that there wasn’t demand.”
Fraud still taking place at crypto exchanges has also put people off investing in Bitcoin.
He said: “People thought that the arrival of institutions such as ourselves as crypto investors would force out the bad actors but it didn’t work out that way – we still saw good money going to back Sam Bankman-Fried [the convicted fraudster who ran the crypto exchange FTX]. That’s a real problem.”
MacInnes added: “I have no Bitcoin personally now and I have no ‘fear of missing out’ despite the recent doubling in its price. I think Bitcoin has had its moment.”
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But he said that if he had to put his money in a cryptocurrency it would be Bitcoin.
He said: “I don’t know much about the others but I am sceptical about them; the ones I’ve looked at are riddled with red flags.”