4 Reasons Paul Tudor Jones’ 5% Bitcoin Exposure Advice Is Difficult For Large Funds

In an interview with CNBC on June 14, legendary investor Paul Tudor Jones raised the alarm about rising inflation. After last week’s customer price index (CPI) report revealed that US inflation had reached a 13-year high, the creator of Tudor Investment advocated a portfolio allocation of 5% Bitcoin (BTC).

Collectively, the world’s 50 largest wealth managers handle $78.9 trillion in capital. Only 1 percent of investments in crypto would be $789 billion, more than Bitcoin’s total market cap of $723 billion.

However, there’s a fundamental misunderstanding about how the business works and this prevents the 1 percent allotment, let alone the 5 percent allotment.

Let’s have a look at a few of the biggest hurdles the conventional financial industry must overcome before it actually becomes a bitcoin monkey.

Rush 1: Perceived Risk

Investing in Bitcoin remains a substantial hurdle for big mutual fund managers, particularly when you factor in their perceived risk. On June 11, the US Securities and Exchange Commission cautioned investors about the dangers of trading Bitcoin futures – mentioning market volatility, lack of regulation and fraud.

While some commodities and stocks show similar or even higher volatility within 90 days, the agency’s focus is still on Bitcoin.

DoorDash (DASH), a US-listed firm valued at $49 billion, has a volatility of 96% compared to 90 percent of Bitcoin. Palantir Technologies (PLTR), a US technology stock valued at $ 44 billion, has a volatility of 87%.

Rush 2: Indirect vulnerability is nearly impossible for US companies

Most of the mutual fund business, largely multi-billion dollar asset managers, can’t buy physical bitcoins. There’s nothing special about this asset category, but most pension funds and 401,000 vehicles do not allow direct investments in physical gold, artwork, or farmland.

However, it’s possible to bypass these limitations by using Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs) and tradable mutual funds. Cointelegraph previously clarified the differences and dangers associated with ETFs and trusts, but that is only the surface as each fund has its own rules and limitations.

Rush 3: Regulatory Funds and Administrators Can Prevent BTC Purchases

While fund managers have complete control over investment decisions, they are subject to certain regulations and risk controls the finance manager imposes. For instance, adding new tools like CME Bitcoin futures might require SEC approval. Renaissance Capital’s Medallion capital faced this dilemma in April 2020.

Anyone who opts for CME Bitcoin futures for example Tudor Investment must constantly change positions prior to the monthly expiry. This difficulty presents both liquidity risk and error monitoring of the underlying asset. Futures contracts aren’t meant for long-term implementation and their rates are extremely different from regular place exchanges.

Rush 4: The conventional banking sector still has a conflict of interest

Banks are relevant players in the industry like JPMorgan, Merrill Lynch, BNP Paribas, UBS, Goldman Sachs and Citi who are one of the largest mutual fund managers in the world.

Relations with another asset managers are extremely close, as the banks will be the applicable investors and sales representatives for these independent investment funds. This entanglement continues because financial firms manage debt and stocks alike, meaning they ultimately decide to allocate mutual funds on these trades.

While Bitcoin isn’t yet an immediate threat to the business’s mammoths, its lack of comprehension and aversion to risks, including regulatory uncertainty, averts $100 trillion for many investors around the world.

The views and opinions expressed here are those of (*4*) and don’t necessarily reflect the views of Cointelegraph. Every investment and trading movement entails risks. You must do your own research when making a determination.