US bank BNY Mellon blames “no exposure to Bitcoin” for fund underperformance

When you think “bank”, you probably think safe, secure and conservative. But some banks are starting to embrace a new currency that’s anything but conservative: bitcoin. Bitcoin is a form of decentralized digital currency that doesn’t require any banks to process payments. It’s the first example of a growing category of money known as cryptocurrency. Bitcoin is just one of several cryptocurrencies, which use decentralized control as opposed to centralized digital currency (like, say, PayPal or Visa). Bitcoin isn’t controlled by a small group of individuals, like the U.S. Federal Reserve. It’s controlled by anyone who uses the currency. The anonymity it offers is also part of the appeal.

Last week, US bank BNY Mellon reported that its Bitcoin Investment Fund (an actively managed fund investing in Bitcoin and other cryptocurrencies) has “no exposure to Bitcoin” and is the reason behind its underperformance, compared to its benchmark, the Citi Cryptocurrency Index. The announcement comes after the fund reported a second quarter return of -4.6%, while the index saw returns of 11.80% over the same period.

US bank BNY Mellon said one of its technology-focused funds is underperforming the market because it does not invest in companies that invest in bitcoin, according to a document released yesterday.

As of the second quarter of 2020, BNY Mellon is the world’s largest custody and asset management firm, with more than $2 trillion in assets under management and $38.6 trillion in assets under custody.

But the bank missed the opportunity to participate in the crypto-currency relay and complained. The fund’s performance was also hurt by the decision not to hold MicroStrategy, whose shares jumped when the company announced it would invest in bitcoin, it said in a statement.

BNY Mellon said in a statement today that the performance of one of its mutual funds declined due to a lack of exposure to bitcoin :

The fund’s performance was also hurt by the decision not to hold MicroStrategy, whose shares jumped when the company announced it would invest in bitcoin.

– MacroScope (@MacroScope17) April 28, 2021

Shares of business intelligence company MicroStrategy – which bought billions of dollars worth of bitcoin last year – have been increasingly touted by experts over the past year as a pseudo bitcoin tradable fund (ETF).

ETFs are regulated financial instruments that track the price of one or more specific assets and can be traded/invested in the same way as individual stocks. Companies have long been trying to set up bitcoin ETFs in the US, but the government continues to deny them listings, forcing some traders to rely on MicroStrategy as a pseudo bitcoin ETF.

The action of the price is amazing. MicroStrategy shares jumped more than 40% in the days following the announcement of its first bitcoin purchase in mid-2020. Since then, it has increased nearly tenfold to peak at $1,269 in February 2021, reflecting the momentum of bitcoin prices.

MSTR:USD via TradingView.

US bank BNY Mellon blames “no exposure to Bitcoin” for fund underperformance

Meanwhile, BNY Mellon also said it was underweight the regional banking sector, whose shares offered investors above-average returns as the US government raised interest rates and the broader financial services sector gained investor confidence with the release of the COVID-19 vaccine.

However, he noted that the position with the gold mining company ultimately proved to be an obstacle. In terms of stock selection, the position in Alamos Gold, a gold mining company, deteriorated as the stock suffered from the weak gold price, the company said.

Banks turn to cryptocurrencies

BNY Mellon is one of several US banks that have plunged into bitcoin in recent months. In February, the bank joined Goldman Sachs, Morgan Stanley and JPMorgan in saying it would store, transfer and issue bitcoin and other cryptocurrencies on behalf of its wealth management clients.

The bank’s wealth management director, Roman Regelman, even said at the time that digital assets will be part of the mainstream and the bank will respond to customers’ needs accordingly.

So BNY Mellon isn’t exactly new to cryptocurrencies. In 2019, the bank became one of the first U.S. financial institutions to release a report on the then-collapsing market, claiming that decentralized exchanges were positioning themselves as a single market instrument.

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US bank BNY Mellon blames “no exposure to Bitcoin” for fund underperformance

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