Blockchain

Wall Street & Institutional Investors get ready for Bitcoin, trust collects $70M

A hot new startup? Not quite. It is Barry Silbert’s new Bitcoin Investment Trust (BIT). The trust is open only to accredited investors, and the minimum investment is $25,000. The value of the BIT derives entirely from the price of Bitcoin.

Barry’s name may sound familiar he started Second Market in 2004. SecondMarket is the world’s biggest broker of venture-backed private-company stock by the value of shares traded.

Barry has established that there is millions of dollars that would like to invest in the future of Bitcoin but for a number of reasons can not buy and hold Bitcoin directly. Since establishing the Trust it has already surpassed $70 million dollars in assets.

The shear force of intuitional investors buying into the Bitcoin economy will have a huge impact of the price of Bitcoin. It will certainly raise but it will certainly fall, just not as far as it raises over time. He stated:

“Once Wall Street starts putting money into Bitcoin -- we're talking about hundreds of millions, billions of dollars moving in -- it's going to have a pretty dramatic effect on the price"

Barry sees this all happening in 3 rather large waves.  The first is already beginning, with IRA money. Customers with self-directed IRAs at Fidelity, Pensco Trust Company, The Entrust Group and Millennium Trust Company. He expects most other IRAs to approve the BIT as an investment vehicle before the second quarter of next year, in response to growing interest from their customers.  Soon this will also include wealth-management arms of Wall Street banks. Including  “several major banks” he expects the trust to be an approved product on their wealth-management platforms within the first half of 2014.

Bitcoin excitement doesn't seem to end. Governments around the world are looking at it closely. In a surprising (maybe not for some) JP Morgan Chase bank on December 10th 2013, filed for a patent in the U.S to develop a payment system utilizing “Virtual Cash”. It actually might have been an old existing patent that was renewed. Nevertheless banks don't want to left behind in what is being termed as the Gold Rush.

On BIT again. This is really a rather huge turn of events.

Wall Street is getting ready to dive into Bitcoin, pouring vast amounts of institutional and investor into the digital currency that has been labeled a “bubble” by former Federal Reserve chairman Alan Greenspan and which not long ago was seen as the sole preserve of crypto-geeks, monetary-theory wonks and anti-government types.

So says Barry Silbert, founder and chief executive of SecondMarket, the online platform that allows its users to trade private company stocks. “We're three to six months away from Wall Street dollars moving into Bitcoin in a big way," he says.

Silbert should know: Earlier this fall, he launched the Bitcoin Investment Trust, the first investment vehicle allowing institutional investors to put money into the Bitcoin market while avoiding the hassle of personally holding the currency. The trust is open only to accredited investors, and the minimum investment is $25,000.

Speaking on Tuesday night at a private dinner for Bitcoin cognoscenti in New York, Silbert said he was astonished by the BIT's performance. "We launched six weeks ago and we're up to $70 million. That blows my mind. We were hoping to get to $10 million by the end of the year." The value of the BIT derives entirely from the price of Bitcoin; it has benefited in recent weeks as Bitcoin soared north of $1,200. Because of a recent dip, the net assets of the trust now stand at about $63 million, which means it is holding that dollar value in bitcoins.

Silbert says he meets frequently with hedge fund workers, traders at large financial institutions and others who want to gain a better understanding of digital currencies and figure out how to capitalize on them. He reckons that Wall Street will enter the Bitcoin market in roughly three waves. The first is already beginning, and it's taking the form of IRA money. Customers with self-directed IRAs at Fidelity, Pensco Trust Company, The Entrust Group and Millenium Trust Company are now able to invest some of their money in Bitcoin via the BIT. Silbert expects most other IRAs to approve the BIT as an investment vehicle before the second quarter of next year, in response to growing interest from their customers.

Also in this first wave will be clients of the wealth-management arms of Wall Street banks. Silbert says the BIT is in conversations with “several major banks" and he expects the trust to be an approved product on their wealth-management platforms within the first half of 2014.

The second wave will be hedge funds and other institutional investors. "The principals that work at all those firms are starting to invest personally in the BIT," Silbert says. Anecdotally, he adds, it's clear they are investing in the Bitcoin market through other platforms as well. With traders, portfolio managers and executives all gaining interest, it appears to be only a matter of time before their firms follow suit and take a position in the digital currency.

The third wave will be Wall Street banks themselves, motivated purely by profit, says Silbert. "These banks already have large teams trading dollars and euros and yen and gold. Ultimately, Bitcoin is no different than those" as far as forex and commodities traders are concerned, he says. And indeed, currency strategists at Bank of America issued a note to clients last Thursday talking up Bitcoin’s potential and analyzing its fair market value.

While most institutional investors are keeping mum on Bitcoin for the time being, the head of one firm has been outspoken about his faith in the cryptocurrency. Michael Novogratz, the co-chief investment officer of macro funds at Fortress, plumped for Bitcoin at a conference held in New York on Oct. 24. He recommended that investors “put a little money in Bitcoin," saying its value would appreciate significantly over the next few years.

At the time, the price of a single bitcoin was less than $200 on most exchanges. "I have a nice little Bitcoin position," Novogratz said at the conference. "Enough that I'm smiling that it doubled." One can imagine how that smile must have widened in the weeks since.

But it's hard to say where the price will be a month or six months from now. Although right now Silbert is happy to see Bitcoin performing above his expectations, in the near term "the price volatility is only going to get worse," he says. “We haven't seen anything yet."

He added, "Once Wall Street starts putting money into Bitcoin -- we're talking about hundreds of millions, billions of dollars moving in -- it's going to have a pretty dramatic effect on the price."

References:

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Brian Roemmele

Brian Roemmele, is a mobile payments expert and an avid blogger at Quora. His profile can be found at http://www.quora.com/Brian-Roemmele. Brian is an Apple enthusiast and has deep interests in writing about new technology in payments.

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