UK brokerage touts exotic Bitcoin bet to wring income from crypto

As cryptocurrency pushes into mainstream finance and attracts billionaire tycoons, one UK brokerage is offering the merely wealthy a potentially safer way to play Bitcoin. The price: giving up any hope of the kind of stratospheric gains the digital coin is famous for.

London-based Marex Spectron Group is selling a structured product known as an autocallable to people with at least $200,000 to invest, according to a term sheet. If the cryptocurrency stays relatively stable for awhile, Marex claims investors could reap an annualised return of as much as 70 per cent via monthly coupons.

If Bitcoin keeps multiplying in value, autocallable investors don’t get to participate in that upside: they’ll just get their capital back early, plus their coupons. And if Bitcoin crashes again — as it did three years ago — investors would lose, but less than they would by trading Bitcoin directly.

“The idea that you want to sell out all the upside in order to get a coupon and 30 per cent downside protection seems pretty unintuitive — but these kind of structures in general are wildly popular,” said Benn Eifert, chief investment officer of hedge fund QVR Advisors. “I imagine they’ll find demand.”

Marex Solutions began marketing the autocallables this week, according to Nilesh Jethwa, who heads the division. Marex Spectron, which is active in the commodity and energy markets, is owned by JRJ Group, the private-equity firm of former Lehman Brothers bankers Jeremy Isaacs and Roger Nagioff.

“Bitcoin is becoming mainstream,” said Jethwa. The Marex product is reserved for professional investors and is being distributed via private banks and family offices.

The popular autocallable structure gained notoriety about two years ago when Natixis SA lost $200 million on the products in Korea after mismanaging the risks of equity market turmoil. Still, the products are a mainstay of the structured products universe, and attract retail investors, especially in Asia, who have large piles of savings and seek regular income.

Bitcoin surpassed $40,000 for the first time on Thursday, before falling to $38,685 at 8:30 am on Friday in London. It has more than quadrupled in the past year, with prominent money managers like Guggenheim Investments’ Scott Minerd predicting the gains have just started.

That kind of return far exceeds what Marex’s autocallable can provide. But that’s a reasonable trade-off for the reduced downside, Jethwa said.

“We are transforming the risk from a speculative investment,” he said. “Investors can decide how much appetite they have for a crash and the yield they want.”

The development highlights how Bitcoin’s months-long rally is luring new investors far from its roots in the tech community, day-traders and people of an ideological bent that sought an alternative to conventional currency. Last year, the Chicago Mercantile Exchange started offering options contracts on Bitcoin futures.

Hedge funders like Alan Howard are becoming involved in an asset class that was once too fringe for the mainstream, betting that crypto is a gold-like hedge against pandemic-driven loose fiscal and monetary policy debasing fiat currencies.

”The reason to own Bitcoin is because things like this can always go up a lot more than they can go down,” QVR’s Eifert said. “They’re quite unlikely to remain stable over any material period of time.”