Paul Tudor Jones Likes Bitcoin as Portfolio Diversifier

Key Takeaways

Jones supports allocating 5% to Bitcoin as inflation threat looms
Alternative assets have become more attractive to investors, as the 60/40 investment portfolio has lost its appeal.

Bitcoin has been a popular asset diversifier for one of the most recognized hedge funds in the world, despite the uncertainty that is growing about possible Federal Reserve action.

In an interview on CNBC Squawkbox, Paul Tudor Jones said that Tudor Investment Corporation is the founder and CIO. “bitcoin is math,” Noting that cryptocurrency can be a means to secure your investment.

“Math has been around for thousands of years and two plus two is going to equal four, and it will for the next 2,000 years,” He said. “So I like the idea of investing in something that’s reliable, consistent, honest and 100% certain.”

The Fed and ‘transitory’ inflation

Jones stated that Bitcoin is an alternative way to put faith in the nonlinear nature of human beings through Fed actions and politicians like Donald Trump, former President and Joe Biden.

The Fed has scheduled a meeting for this week. Jones, in his interview, said that it is the most significant Fed meeting in five years because Jerome Powell, Jerome Powell’s central bank agency chairman, called inflation a threat. “transitory.”

CNBC’s Andrew Sorkin questioned Jones about his opinion of bitcoin at the current price. On Monday, the cryptocurrency reached a high of about $40,000. Industry watchers attribute the rise in part to Elon Musk’s statement that Tesla could accept bitcoin transactions again in the future.

“The only thing I know for certain is I want to have 5% in gold, 5% in bitcoin, 5% in cash and 5% in commodities at this point in time,” Jones replied. “I don’t know what I want to do with the other 80%. I want to wait and see what the Fed’s going to do because what they do will have a big impact.”

James Butterfill said that during the June 10th webinar, hosted by Blockworks, that the Fed has been a stumbling block for investors. “killing” the 60/40 portfolio — a long-used investment strategy of allocating 60% of assets toward equities and 40% in fixed income.

Ross Gerber of Gerber Kawasaki Wealth and Investment Management joined Butterfill in the panel. He added that low returns on government bonds and currency devaluation have made alternative assets even more valuable for investors.

“That’s kind of the approach we’ve taken with our clients. This isn’t about changing your entire focus,” Gerber said. “It’s about taking some of your assets — 1% to 5% of it — and putting it in these digital assets, especially bitcoin and ethereum, and adding it to a portfolio like a stock and letting it run and see how it goes.”

Jones told Bloomberg that in May 2020 he bought bitcoin to hedge against inflation, which he anticipated as a consequence of central bank money printing as they countered the coronavirus epidemic. Jones said in May 2020 that his Tudor BVI funds may own as much as low-single-digit percent of their assets as bitcoin futures.

Tudor Investment Corporation has declined to make any comments on its specific bitcoin allocations.

Alpha generation potential

Brevan H. Howard is a manager of a hedge-fund that has been trading in bitcoin and other cryptocurrencies as part of its investment portfolio.

Matthew Edwards of Dalpha Capital Management told Blockworks that he thinks that digital assets have a significant potential for alpha. According to Edwards, the biggest downside of crypto for hedge fund firms is the numerous regulatory obstacles they have to overcome in order stay compliant.

“We see the myriad inefficiencies in this space as the principal source of this opportunity, especially to the extent one can wed technical proficiency with trading expertise,” Edwards said. “…As infrastructure, liquidity, and regulatory clarity improve, we expect hedge funds to make their way into this space in greater numbers.”