On Wednesday (May 27), around 07:00 UTC, prior to Goldman Sachs’ conference call with investor about the U.S. economy, gold, and Bitcoin, BTC was trading as low as $8,847 on crypto exchange Coinbase. By early this morning (May 29), the Bitcoin price had reached $9,600, which means an increase of 8.5% against USD, as you can see in the BTC-USD 5-day price chart (provided by TradingView) shown below:
Last week, Arthur Hayes, who is Co-Founder and CEO of crypto derivatives exchange BitMEX, published a blog post titled “In The Beginning There Was House”, in which he tried to explain the difference average hedge fund managers and exceptional hedge fund managers:
“The exceptional investor invests in heretical themes, and sells once those themes become orthodox.
“The average investor invests in orthodox themes, and sells once those themes become irrelevant.”
Hayes considers Paul Tudor Jones II a “Bitcoin Baby” (since he recently started trading Bitcoin futures for his BVI Global Fund) but an exceptional hedge fund manager, and he explained why Tudor Jones’ interest in Bitcoin is important:
“Paul Tudor Jones (‘PTJ’) is a trader with a capital fucking T. His homage to why inflation is coming and Bitcoin is a possible way to outperform inflation in the coming years is very important because it removes career risk from fund managers owning Bitcoin risk.”
What Hayes is saying that people like PJT jump on “heretical” ideas (like Bitcoin today or Facebook around the time of its IPO in 2010) before they get adopted by the herd and become “orthodox” ideas:
“LPs and money managers want to believe they go against the grain. But not really. A heretical idea is an orthodox idea entered into early. Being early is as bad as being wrong.
“Exceptional investors are able to find the financial instrument or portfolio construction that allows them to be early and not lose too much capital in the process. Cheap convexity is hard to find, and that’s why there are only a handful of truly successful money managers.
“PTJ announced, via an investor letter and Bloomberg fluff piece, that his fund holds futures contracts. Traders always talk their book, once they have truly right-sized their position.
“The game now is to use the infallibility aura gained from past successes to force the sheeple to convert a heretical idea into orthodoxy. Then you dump on the mother fuckers.
“So an investing legend announced to the world his fund now owns Bitcoin … futures. Game, blouses.”
Hayes then goes on to say that the best way for hedge funds to get exposure to Bitcoin is via Bitcoin futures:
“Holding physical Bitcoin in size is risky and difficult. The amount of money spent by the top exchanges on security is non-trivial.
“Therefore if there is a fiat margined derivative that gives them the same exposure, they hold that instead. Any hedge fund’s prime broker will have an account at the CME.
“Voila, they can now gain long exposure to Bitcoin.”
The BitMEX CEO then says that the “thundering herd of wanna-be macro fund managers will be demonstratively evident if the CME curve blows out into a massive contango over the non-US platforms” and that “the CME curve should trade richer than all other Bitcoin futures platforms.”
So, Hayes recommends watching open interest in CME Group's Bitcoin futures:
“If indeed PTJ nudged his average brethren to follow in his footsteps, any meaningful portfolio allocation will appear in rising CME open interest and a steep contango curve.”
And finally, the BitMEX CEO seems hopeful that other legendary hedge fund managers will get into crypto now that someone as high profile as PTJ has caught the “Bitcoin bug”.