It once seemed like a digital pipedream, but cryptocurrency is gaining steam among both consumers and finance professionals. Currently, more than 300 million people around the globe use cryptocurrency, a figure that’s expected to continue increasing. With 46 million Americans investing in bitcoin alone, it’s the frontrunner in the blockchain rat race.
More people are embracing bitcoin, which has increased in value by over 190,000% from 2012 to 2020. With such impressive gains, it’s no wonder why so many fund managers now have their eye on the risky—but promising—investment.
Dennis P. Lynch, Jr. (Marshall), the Head of Counterpoint Global at Morgan Stanley, is no stranger to disruptive investments. At the annual Morningstar Investment Conference in September 2021, he shared his unconventional thoughts about bitcoin, saying, “Bitcoin’s kind of like Kenny from South Park. It dies every episode, and then it’s back again.”
But fund managers as a whole are still unsure about bitcoin. Learn why Dennis Lynch believes bitcoin is the next great frontier and how other fund managers are approaching this unique investment class.
About Marshall “Dennis” Lynch
Dennis Lynch, who also goes by Marshall Lynch, is the Head of Morgan Stanley Counterpoint Global. Dennis Lynch grew up in Rumson, NJ, and earned his Bachelor of Arts in Government from Hamilton College in 1993. He subsequently earned his Master of Business Administration in Finance from Columbia University Business School in 1998 with honors.
With over 27 years of experience in the industry, Dennis Lynch joined Morgan Stanley in 1998, serving as its Head of Small and Mid Cap Growth Investing. Before his time at Morgan Stanley, Lynch worked for J.P. Morgan Securities as a sell-side analyst.
Dennis Lynch has a AA rating with Citywire and was named as a Morningstar Fund Manager of the Year. Today, he co-manages the $2 billion Morgan Stanley Institutional Reception Fund, which returned 150% in 2020.
Dennis Lynch: Why bitcoin just won’t die
Dennis Lynch frequently manages high-risk, high-yield investments in his work with Morgan Stanley. Since Counterpoint Global frequently pursues disruptive investments, Dennis (Marshall) Lynch naturally went all-in on crypto in 2021.
In his experience, bitcoin is an investment that continues to crash, soar, and repeat. “‘You see that in newspaper and media: ‘Bitcoin’s dead! It’s over this time!’ It just continues to persist,” Lynch says, “I think that’s interesting adoption. It’s almost like bitcoin’s a virus and we’re all a little bit infected.”
And the bitcoin bug has definitely bitten Lynch. In his opinion, bitcoin has a lot of promise for investors and consumers because:
- Bitcoin has scarcity: Bitcoin doesn’t produce cash flow on its own, but its scarcity alone gives it value. There will only ever be 21 million bitcoin in the world, so for Lynch, its scarcity is the store of value.
- Bitcoin hedges your bets: The upside scenarios of bitcoin are so huge that Lynch just can’t ignore them. Bitcoin is in Lynch’s portfolio, albeit with a small presence. He likes diversifying his investments so that, if something goes wrong with his other more conventional assets, his bitcoin investments could do well. Lynch says his investments in Square are still speculative, but they have the potential to be productive, especially in an uncertain market.
- Bitcoin is antifragile: According to Dennis Lynch, bitcoin performs well in times of chaos. If investors want to weather a disruptive market, bitcoin could perform well while all other investments collapse.
- People trust crypto: Bitcoin users have 97% confidence in crypto. After the economic disruption of the pandemic decreased the dollar’s buying power, consumers are putting their faith in an alternative currency, like bitcoin. For Lynch, this means there’s a lot of opportunities to grow as a bitcoin investor.
Yes, people like to say that bitcoin is dead. But they’ve been saying that for nearly 10 years and bitcoin is still as strong as ever. To Dennis Lynch, bitcoin is worth the investment, despite its haters. In fact, in 2021, Morgan Stanley increased its crypto investments by doubling its shares to over $2 million in the Grayscale Bitcoin Trust.
What mutual fund managers are doing about cryptocurrency
Dennis Lynch is all-in on bitcoin, but what do other fund managers think?
There’s no universal answer; some fund managers invest in bitcoin speculatively, others embrace it 100%, and others avoid it entirely.
Cryptocurrency rises in value so quickly that it can generate mouthwatering gains for investors who time their transactions wisely. But crypto also crashes spectacularly, which makes fund managers wonder if it’s truly trustworthy.
Most fund managers have their eye on crypto, whether they’re investing in it or not. No matter who you speak to, most fund managers are taking one of four approaches to cryptocurrency:
- Anti-crypto approach: Some fund managers avoid investing in bitcoin altogether because they disagree with its premise. Others don’t like how volatile bitcoin is—you can do everything right and still lose your shirt if you aren’t careful.
- Wait-and-see approach: Many fund managers are buying a small amount in bitcoin and seeing how it performs. Although bitcoin sounds like a crazy idea today, in 15 years it could easily become the standard. A wait-and-see approach with a small investment allows fund managers to join in on the bitcoin craze without too much risk.
- Technology-first approach: Other fund managers are more interested in the technology backing bitcoin instead of bitcoin itself. Blockchain has so many potential uses that fund managers are eager to invest in bitcoin to get a piece of the action. With the blockchain market estimated to bring in $20 billion in 2024, this is an exciting premise for future-focused funds.
- Crypto diversity approach: Not all crypto is created equally, and some fund managers opt for a specific blend of cryptocurrencies over others. For example, some managers dislike bitcoin because it isn’t as flexible as other options, like Ethereum. With over 6,000 types of crypto available, fund managers can diversify their holdings in the hopes that one crypto will come out on top.
Crypto: The “Kenny” of investments
Bitcoin’s volatility makes it a risky investment, but for Dennis (Marshall) Lynch, it’s a risk that’s worth the payoff. With more funds opening their doors to crypto, there are even more ways for investors to try their luck with bitcoin.
Although fund managers might disagree about the inherent value of bitcoin itself, most agree that the blockchain technology backing bitcoin will innovate many industries in the future. However bitcoin chooses to reanimate after its inevitable next death, Lynch believes its innovation holds promise beyond its value as a cryptocurrency.