Questions Surround Bitcoin on the Buy Side

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Anthony Malakian, US Editor, WatersTechnology

As Bitcoin continues to evolve, the headlines have been both positive and negative. One thing that is becoming clear is that some buy side firms are dipping their toes in these turbulent waters—though most, quite tellingly, are keeping those forays under wraps, and confined to their own internal money, rather than clients'.

One of my colleagues, Timothy Bourgaize Murray, has a tendency to prattle on about things that I know nothing about. I'm not quite sure if this is more a sign of his intelligence, his pretentiousness, or maybe I'm not as erudite as I might think I am.

So when he wrote a New Perspective for BST on some Bitcoin developments ealier this week, I believe that I might've made a snarky comment before even reading his story, because that's the kind of editor I am.

And then I read his article. What jumped out at me were the prestigious buy-side names that are involved in the Bitcoin revolution.

Tim spoke with Bitcoin market maker, Fort Hill, a Massachusetts-based alternatives manager overseeing a family of different mutual funds totalling about $4 billion. Fort Hill founder Alec Petro believes in the potential of Bitcoin. "It's risky," he told Tim, "but we believe the risk-reward has been—and continues to be—attractive, and in the long term has the potential to have huge rewards to larger participants as the market evolves."

The story notes that there are two types of market participants: "market-makers accumulating trading positions throughout the day on one hand, and investors like Fortress Investment Group, who were in early consultations with [alternative trading system] Atlas, on the other." The ATS recently added Bitcoin trading and walleting to its offering, partnering with mainstay connectivity provider Perseus in the process.

In addition to Fortress and Fort Hill, prop trading shops Sun Trading and Tradebot Systems have also have begun dabbling in Bitcoin, according to Shawn Sloves, CEO of Atlas.

I'm an old man and I don't like change; the concept around Bitcoin remains out of my grasp. All I really know of it is what I read about it after the collapse of Bitcoin exchange Mt. Gox, the Silk Road debacle, and the apparent suicide of Autumn Radtke, the CEO of First Meta, an American Bitcoin exchange. For a virtual currency in its infancy, these aren't the most confidence-inspiring headlines. And yet, as Petro suggested, its price is starting to stabilize after a year of heady gains and runs on the currency. Some predict it to rise higher still; others see a bubble. That, of course, makes a market.

Rest assured, I will not be an expert on Bitcoin in the near future; I'll continue to get my cues from Tim. But there is some clear interest coming from the buy side as it relates to the potential of Bitcoin.

There's a lot of hype and negativity out there, and when there's a great deal of ignorance that encompasses a topic, sensational headlines will always rule the day. Perhaps sounds technology—and clarity of regulatory oversight—can make Bitcoin more capital markets-friendly. The question becomes: Will the negative headlines, or the positive hype, win the war?

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