Hedge Fund investing in Bitcoin! Bitcoin price to $1000?
Big news in the Bitcoin world confirmation that a hedge fund is investing in Bitcoins. Because of the fear that the Yuan is going to devalue ever increasing a flight of capital out China with limited methods of getting money out due to capital controls. Bitcoin now becomes a serious option for getting capital out of China.
Long before “The Big Short’s” Michael Burry was a household name for his insight into the upcoming subprime crisis of 2006-2007, there were many others among them John Paulson, Kyle Bass, and Corriente Advisors’ Mark Hart. Just like Bass, Mark is another Texas-based hedge fund manager who correctly predicted, and profited from, the subprime crisis. He is also an expert on China, and in fact, just last month in the aftermath of the recent Chinese devaluation which roiled markets, he said that “China should weaken its currency by more than 50 percent this year.”
Hart believes that the Chinese crawling devaluation is an error as it carries with its the latent threat of much more devaluation in the future, thus encouraging even more outflows, which in turn forces China to sell even more reserves, which destabilizes the economy even further, forcing even more devaluation and so on.
And while we explained that Hart’s “devaluation” trade consists of buying Yuan puts, according to a recent interview he gave to Raoul Pal RealVision, he has also put another trade on alongside his FX deval: investing in Bitcoin.
As we explained simply, with Chinese capital controls increasingly more strict, the local population, which was nearly $25 trillion in deposits in local banks, will rush to transfer these massive amount of savings offshore, and will end up using bitcoin to do it.
Which is why we would not be surprised to see another push higher in the value of investing in Bitcoin: it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented “forking” with Bitcoin XT), however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22trillion in Chinese deposits in bitcoin (whose total market cap at last check was just over $3 billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.
Yes, bitcoin may be slowly but surely leaving the domain of the libertarian fringe, but in exchange it is about to be embraced as the most lucrative and commercial “blockchained” way to capitalize on what may soon become the largest capital outflow in history…
So what is one trade that can be put on to bet on further Chinese devaluation (or outright economic collapse) with limited downside, with unlimited upside, and one which is guaranteed to be profitable if and when the local Chinese depositor herd gets out of Yuan en masse after the next 10%, 20%, 50% or more devaluation and rushes into bitcoin? Simple: do precisely what we said in September, and precisely what Corriente’s Mark Hart is saying now: investing in Bitcoin, because once the Chinese buying frenzy is unleashed, and $25 trillion in deposits scramble to be packed into a product with a $6.5 billion current market cap (but only when the price of a bitcoin is $430; the market cap does rise to $25 trillion if every bitcoin is worth $1.6 million) one thing will happen: the price of bitcoin will soar exponentially.