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AI-driven hedge fund rules out bitcoin for lack of ‘fundamentals’

By Jonas Cho Walsgard

A Swedish hedge fund that returned roughly four times the industry average last year using artificial intelligence won’t touch bitcoin, based on an assessment that the cryptocurrency doesn’t lend itself to sensible analysis.

Patrik Safvenblad, the chief investment officer of Volt Capital Management, says the problem with bitcoin and other crypto assets is that they “do not have accessible fundamentals that we could build a model on.”

“When there is a crisis, markets generally move toward fundamentals. Not the old fundamentals but new, different fundamentals,” he said in an interview. So if an asset doesn’t provide that basic parameter, “we stay away from that,” he said.

The role of bitcoin in investment portfolios continues to split managers, as the world’s most popular cryptocurrency remains one of its most volatile asset classes. One coin traded at less than $40,000 on Friday, compared with an April peak of $63,410. This time last year, a single bitcoin cost around $10,000.

Among Volt’s best-known investors is Bjorn Wahlroos, the former Nordea Bank chairman. His son and former professional poker player, Thomas Wahlroos, is Volt’s board chairman. The fund currently manages assets worth just $73 million, on which it returned 41% in 2020, four times the industry average.

Bitcoin enthusiasts recently received a boost when hedge fund manager Paul Tudor Jones told CNBC he likes it “as a portfolio diversifier.” He went on to say that the “only thing” he’s “certain” about is that he wants “5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities.”

Meanwhile, Bank of America research shows that bitcoin is about four times as volatile as the Brazilian real and Turkish lira. And the International Monetary Fund has warned that El Salvador’s decision to adopt bitcoin as legal tender “raises a number of macroeconomic, financial and legal issues that require very careful analysis.”

Safvenblad says it’s more than just a matter of bitcoin’s lack of fundamentals. He says he’s not ready to hold an asset that’s ultimately designed to dodge public scrutiny.

Volt would “much prefer to be in a regulated market with regulated trading,” he said. “And bitcoin is not yet fully regulated.”

The hedge-fund manager has chosen 250 models it thinks will make money, and its AI program then allocates daily weightings. Volt’s investment horizon is relatively short, averaging about 10-12 trading days. It holds roughly 60 positions at any given time, and its current analysis points toward what Safvenblad calls a “nervous long.”

“In the past few weeks the program has turned more bearish,” he said. We have some positions that anticipate a slowdown, for example long fixed-income, and the models have now trimmed our long positions in commodities. Today, the portfolio reflects a more balanced outlook.”

Safvenblad says the advantage to Volt’s AI model is that it’s unlikely to miss any signals. “We don’t say that we know where the world is heading. But we have a system that monitors everything that could mean something.”

Bloomberg

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