August 9, 2021
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Why Don’t Institutions Buy Bitcoin?

Recently, Paul Tudor Jones, who is one of the Wall Street Wolves has invited institutions to buy Bitcoin. He has advised that they should allocate %5 of their total portfolio to Bitcoin because statistics show that the inflation rate has reached to its highest level during the past 13 years. But despite this advice, the question is that why do institutions resist investing in Bitcoin? Do they worry to buy bitcoin?

Managers worry to buy bitcoin!

One of the reasons is managers are concerned about market risk. The US Securities and Exchange Commission’s warning about fluctuations, unclear rules and the possibility of fraud in Bitcoin transactions has also intensified this issue.  This is while there are similar fluctuations in stock market during the recent 90-day period.

The second barrier is that significant hedge funds cannot buy Bitcoin physically. In addition, most of hedge funds are not allowed to invest directly in physical gold, artworks or real estate.

Uncertain rules for the hedge funds activities besides instructions that the head of the fund should follow regarding risk control is also another obstacle in this field. As an example, to add some products such as Bitcoin futures belonging to CME Financial Group, SEC approval is required. If a hedge fund aims to use these products, it should change its position monthly before the expiration date, which represents liquidity risk and slip tracking of the main tool.

As top banks are the investors and distributors of independent hedge funds, the communication with these managers is very difficult. Since these financial institutions also have influence on shares and debts, they are the ones, who decide on allocation of funds in such transactions.

Although Bitcoin is still not a direct threat to these financial industry giants, lack of enough comprehension and risk aversion, which include the lack of certain transparent rules have made the giant hedge funds avoid investing in this new financial asset.

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