Investors late to Bitcoin's newest stratospheric surge should have been watching emerging markets, according to one investment firm that made a bet on the currency some two months ago.
ARK Investment Management, which oversees the first exchange-traded fund with exposure to the virtual currency, has almost doubled its money since investing in September, when currency volatility in developing economies touched a more than three-year high. Bitcoin rose beyond $500 for the first time in more than a year on the Bitstamp exchange this week, up from $230 at the end of August.
First Greece, then China's currency devaluation, then expectations of a U.S. interest-rate increase boosted price swings and prompted an exodus of capital from emerging markets. That elevated Bitcoin—a digital currency independent of a particular central bank or economy—to safe-haven status and boosted flows into the asset, according to Cathie Wood, who founded ARK in January 2014.
"This is going to take off in the emerging markets before it will take off here because there's so much volatility and instability," she said during an interview at the company's headquarters in New York last month. "They know what trouble means; it usually means they've got to develop some hedges."
It may be early to take a victory lap as Bitcoin, which is known for making its own very sharp moves, has already fallen since the recent high. On Thursday the virtual currency hit $364 on Bitstamp before ending the day at $409.
Source: Bloomberg
ARK's stake in Bitcoin also remains small—about $200,000 in its Web X.0 fund despite increasing its position at least three times—and accounts for 0.8 percent of the fund's returns in 2015, Bloomberg analysis shows. The overall fund has returned 15 percent this year, more than 98 percent of the 1,544 unleveraged ETFs in the U.S.
Volatility in currencies, stocks, and fixed income has sapped the performance of investment funds this year. Those same price swings have, however, benefited Bitcoin, according to Ashraf Laidi, chief executive officer at Intermarket Strategy in London.
"China's devaluation, the risk of a Greek exit, which may have diminished but could likely return, and the very foggy and dim future of subsequent rate hikes if the Fed ever does do liftoff, all of these matter and increase the volatility," Laidi said by phone on Wednesday. "They do lend an increasingly credible story to Bitcoin."
ETFs can't currently buy Bitcoin directly. ARK instead added 1,100 shares, worth $33,000, in Bitcoin Investment Trust to its Web X.0 fund in September. ARK has since boosted those holdings, and the fund now owns 3,786 shares. Those were worth $204,444 as of Wednesday's close and 193,086 as of Thursday.
Wood said she isn't worried about volatility in the cryptocurrency.
"The fact that Bitcoin has stabilized for a good nine, almost 12, months in the $200 to $300 range after a near-death experience with Mt Gox has given people more comfort that this thing is not going to implode," she said in a follow-up interview this week, referring to the collapse of one of Bitcoin's most popular exchanges.