Hedge fund manager Hugh Hendry is betting on Bitcoin (BTC) and low interest rates next year.
Hendry says there “always two ever-present tail risks” in a short volatility investment strategy, which aims to profit off decreases in market volatility by selling options.
“Do you buy the call option that the Mag-7 become capitalized at 100% of GDP or that rates descend rapidly to the lower bound?
That’s why I keep hammering on about observing where stock levels are on the day of the next cut. I’m running a barbell: long BTC and long calls on <2% Fed Funds at year end 2025
I am of course exposed to a tracking error, that stocks surge and bitcoin is flat or down on some idiosyncratic news. I’m content to run that risk.”
Mag-7 refers to the “Magnificent Seven” tech stocks: Alphabet (GOOGL; GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA).
Hendry also compares Bitcoin’s size to the Invesco QQQ, an exchange-traded fund (ETF) based on the Nasdaq-100 Index.
“BTC is everyone’s phantom, good or bad. In reality, its MASS renders it irrelevant to this conversation but highly attractive for upside consideration. In the game of Newton’s Cradle, MASS is paramount today, it’s the outlier.
BTC’s capitalization is just $1 trillion. QQQ is $42 trillion. The Qs, or rather the $13 trillion in the Mag-7, are therefore the only consideration. Bank stock lending renders the robustness of that valuation paramount. If that melts, the credit unravels, the margin call is immense.
Perhaps doesn’t happen, but if I were a bank I’d be circumspect about the moneyness of that collateral. I’d be trying to contra-cyclically reduce my assets, markets and their liquidity permitting. By moneyness I mean the pledged assets’ proximity to a t-bill. Your t-bill ain’t gonna lose 83% of its value over the next 18 months.
Bur stocks capitalized at these vaunted levels vis-a-vis GDP have periodically suffered such reversals.”
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Generated Image: Midjourney
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