When we talk bitcoin milestones we tend to talk about big round numbers like $10,000 and fresh inroads into the financial system, e.g., futures. But there's one watershed moment that didn't get enough attention when it occurred back in September, and that's Long Bitcoin placing first in the Most Crowded Trade ranking in Bank of America Merrill Lynch's monthly survey of fund managers. For the first time, enough of BAML's roughly 200 respondents looked around and decided that the trade they felt sorest about missing was the crypto bandwagon.
That was back when bitcoin was trading around $4,000. Over the next couple months fund managers forgot about bitcoin and reverted to that old overcrowded standby, Long Nasdaq. But now that more and more of the Bill Millers and Bo Collinses of the world have given up and gone crypto – and the price has spiked more than 3,500 percent – BAML's respondents are back to bemoaning bitcoin:
For reference, here are the other contenders for the overcrowded throne:
It's a curious phenomenon. What is it that convinces a fund manager that x or y is overcrowded? Unreasonable valuations alone? Stinging regret over a missed trade? Actually noticing other investors swarming en masse? A combination of all of these? Is any useful information is really conveyed here?
The fact that managers are waffling between Long Nasdaq and Long Bitcoin as the top bandwagon trade gives us some indication as to the answer. The judgment can't be based on absolute investment totals. At $8.1 trillion, Nasdaq's market cap is more than 26 times that of bitcoin. If an even remotely similar quantity of institutional capital flowed to bitcoin as it does Nasdaq, bitcoin $100,000 wouldn't be much of a fantasy.
But that's not happening. Likely it's more about perceptions of what a reasonable bitcoin allocation should even be. For many managers – particularly the ones for whom going tie-less on Fridays is an unacceptable level of risk, let placing other people's money on a digital currency best used for money laundering and drug purchases – putting one red cent in bitcoin is beyond the pale.
That stands in contrast to the view from Dan Morehead of Pantera Bitcoin Fund, the hedge fund whose returns have exceeded 25,000 percent thanks to cryptos:
He said he tells investors to put only around 1 percent of their net worth in virtual currencies. But he thinks that 1 percent could do very well. “There are a lot of famous people who have said Bitcoin is a joke,” he said on Monday. “They might be right. But if they are wrong and it goes up 25 times, they are missing out on a huge trade.”
From this perspective, it's irrational not to put 1 percent of your AUM in bitcoin (which, as it turns out, is how much CalPERS now plans to put in U.S. dollarcoins).
Even if acceptance of bitcoin in an institutional portfolio remains a somewhat marginal position, it's growing. It may be only a small fraction of fund managers who are willing to risk a foray into Cryptoland, but even these few brave souls might resemble a “crowd” to the rest of their peers given the baseline expectation of bitcoin allocation, which is zero.
Alternatively it's just envy. In which case, gird yourself for the inevitable future BAML survey in which Long Bitcoin comes in third after Long Litecoin and Long Ziddu.