Ruffer says ‘speculative frenzy’ pushed it out of $1.1bn bitcoin bet

Wealth manager Ruffer has exited its high-profile bet on bitcoin after growing nervous about the “speculative frenzy” in the cryptocurrency, but said it would consider holding the digital asset again as a defence against inflation. 

The normally cautious UK fund manager turned heads in the City in November when it took a roughly $600m position in bitcoin. Since then, it has netted a $1.1bn profit as it sold down the stake in 2021. 

But the fund manager said the rush of speculation in the market this year — including huge rallies in the price of joke-based cryptocurrencies — has made the digital asset too hot to hold.

“It just looked like this would be a time when it would be nicer to be watching from the sidelines than from in the trenches,” said Duncan MacInnes, an investment director at Ruffer who helped manage its bitcoin stake. 

Ruffer bought bitcoin when it was trading at about $15,000, and completed its exit in early April when the price stood at $55,000. Shortly afterwards, cryptocurrency prices dived after Tesla chief executive and former bitcoin advocate Elon Musk voiced concerns over the environmental impact of the token’s “mining”. 

Even after a sharp correction that has left bitcoin at a three-month low trading at about $33,000 against the dollar, MacInnes said he is not tempted to buy the dip. “When something like dogecoin is still [valued at] $40bn, it’s hard to say that the froth has come out,” he said. 

Bitcoin is largely a speculative bet for some wealthy individuals and other small retail investors seeking quick returns. Ruffer’s investment was seen as the kind of institutional adoption that could provide lasting support to the tokens, as investors sought out new ways to diversify portfolios and offset inflation risks.

But MacInnes said that as bitcoin’s price doubled from January to a peak around $60,000 in mid-April, the market appeared overextended. “You could see very clearly that there was a rise in speculative behaviour,” he said. 

An increase in debt-fuelled leveraged bets on crypto and the influx of new retail traders in to the market added to Ruffer’s concerns. The surging price also left less room for further growth to offset the risk of holding bitcoin, including the growing threat of regulation. 

Ruffer, which manages about £24bn mainly for wealthy individuals and charities, has shifted funds into gold, inflation-protected bonds and commodity stocks as it tries to offset the risk of inflation. The wealth manager has returned about 20 per cent, net of fees, over the past 12 months, with its bitcoin profits contributing about a sixth of that performance. 

Ruffer said bitcoin is still “on the menu” of potential investments for the future, as fund managers hunt for new sources of returns and diversification. MacInnes has viewed the boom in crypto partly as a reaction to ultra-low bond yields, which have upended the traditional portfolio structure of 60 per cent stocks and 40 per cent bonds. 

“The rise in the bitcoin price has been pretty rational in the sense that investors are having to take increasingly drastic steps to protect against inflation and figure out what to do with the 40 per cent of their portfolio that is earning nothing,” said MacInnes. “The world is desperate for new safe haven, uncorrelated assets.”