BK Capital Management's Brian Kelly advises savvy investors that it’s not too late for investors to hop into cryptocurrencies after bitcoin futures surged in an eagerly awaited U.S. market debut that backers hope will confer greater legitimacy and lead to its wider use.
"It's so early," he told CNBC. "You haven't missed the train yet," said Kelly, founder of BK Capital Management.
Kelly warned that the digital currency will be "incredibly inefficient" for now but will eventually mature.
"Bitcoin itself has been around for eight or nine years now," he said. "The trading markets are really just maturing. It'll get more complicated. More strategies will come in," he said.
"But clients calling you saying, ‘Hey, how do I get in?' To me that's a bullish sign," he added.
Although bitcoin futures were already offered on some unregulated cryptocurrency exchanges outside the United States, the Chicago-based Cboe Global Markets’ launch marked the first time investors could get exposure to the market via a mainstream regulated exchange.
The debut on Sunday night may have caused an early outage of the Cboe website. The exchange said that due to heavy traffic, the site “may be temporarily unavailable,” Reuters reported.
The one-month future recently was up 13 percent from the open at $17,450, around $1,000 higher than the “spot” bitcoin price - the price at which bitcoin is currently being bought and sold. The two-month contract was trading at $18,880, while the three-month contract was changing hands at $19,040.
“The premiums have so far been very high, demonstrating that few want to take the short side of the trade,” said Altana Digital Currency Fund manager Alistair Milne, whose fund has $35 million in assets under management.
In just over 12 hours after the launch, 2,780 contracts had been traded, meaning around $48.5 million had been notionally invested. That compares with daily trading volumes of more than $20 billion across all cryptocurrencies, according to trade website Coinmarketcap. Just 13 trades of the two-month contracts had been traded.
“It will take time for derivative volumes to build up, but eventually if they prove to be a significant percentage of the global trade, they should in theory help stabilize things,” said Milne.
Most fund managers at mainstream asset management firms and other institutional investors say they will not be lured into the market by the launch of the futures.
“There’s no place for bitcoin in a multi-asset portfolio given the very high volatility,” said Robeco Chief Investment Officer Lukas Daalder.
“We’ve looked at it in the past but if you look at the number of times that you need to trade to keep your exposure at the same level, after one week you need to rebalance the portfolio already,” he added.
Bitcoin is up more than 1,500 percent so far in 2017, having started the year at less than $1,000, and its gains in the past month have been rapid.
Many investors have stood on the sidelines watching its price rocket. However, it is possible to buy bitcoin without having to spend the full price of one coin. Bitcoin’s smallest unit is a Satoshi, named after the elusive creator of the cryptocurrency.
Somebody who invested $1,000 in bitcoin at the start of 2013 and had never sold any of it would now be sitting on around $1.2 million.
To be sure, some respected investing gurus are literally predicting that the sky is the limit for the volatile cryptocurrency.
Cameron Winklevoss, thought to be one of the largest holders of bitcoin, thinks the cryptocurrency’s blazing gains predicts it will rise as much as 20-fold as investors come to view it as an upgrade to gold.
Winklevoss is one of the famed 36-year-old twins who played an early role in Facebook Inc.’s formation, then dedicated part of their fortune to the cryptocurrency and have since tried to win approval for a bitcoin trading vehicle, Bloomberg reported.
Winklevoss bases his price projection on the market value of gold, which he pegged at about $6 trillion and others calculate at closer to $7.5 trillion. Investors are beginning to embrace the idea that bitcoin, “mined” by computers performing complex calculations, is more portable and divisible than the precious metal, he said.
“We think that bitcoin is a gold disruptor,” Winklevoss said in a telephone interview on Friday, predicting it may yet appreciate by 10 to 20 times its current value. “We think it’s just the beginning. We are definitely holders.”
However, not everyone is as optimistic.
For his part, Newsmax Finance Insider Hans Parisis remains skeptical and is far from impressed with the digital currency, which he agrees is rapidly assuming “the mantle of the bubble to end all bubbles.” And he warns investors to take note and avoid it.
"Bitcoin’s value rests on being used as a currency, but bitcoin cannot be used for the most important transaction in any economy and the supply of cryptocurrencies can only rise and never fall, rendering it a highly dangerous 'store of value,'" Parisis recently wrote in his Finance Insider blog.
"Moreover, at the moment it is impossible to buy anything with bitcoin. Goods are sold at a bitcoin price that converts bitcoin into useful currency, but while the dollar price of a good for example is constant, the bitcoin price changes day to day," Parisis explained.
"That’s what transactions represent is a simultaneous asset sale and purchase of goods and services. That is not what a currency does."
(Newsmax wire services contributed to this report).
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