Fortress Investment to Invest in Bitcoin - Analyst Blog

Fortress Investment Group LLC FIG, the NY-based investment manger, along with Benchmark Capital and Ribbit Capital, is set to buy stakes in Pantera Bitcoin Partners – a subsidiary of Pantera Capital. The latest move shows Fortress Investment's renewed interest in Bitcoin's operations.

As of Dec 31, 2013, Fortress Investment reported $3.7 million paper loss in its pilot Bitcoin investment. The investment reflected less than 1% of the $2.6 billion balance sheet of the company and hence did not dampen the company's quarterly earnings.

Despite the reported loss in the previous quarter related to the virtual currencies, Fortress Investment foresees long term growth prospects in the aforementioned deal.

The “Bitcoin economy” is no more an elusive dream as virtual currencies are becoming increasingly popular, given the convenience of usage and innate characteristics which help to maintain its purchasing power.

Moreover, as per analysts, Bitcoin's price has reached an inflexion point, which indicates that it is the correct time to invest in the same. Though the price had fallen following the closure of MtGox, the Bitcoin exchange, it has been recovering since then. Moreover, in 2013 Fortress Investment reported a year-over-year rise of 121% in net income, which depicts the company's ability to undertake calculated risks.

Nevertheless, there are certain loopholes that could be a drag in the long term. The price volatility, high susceptibility to technological fallouts and chances of being misused could challenge the usage of these currencies for money transfers and payments.

The absence of regulated derivative markets for Bitcoin restricts risk hedging, which in turn, discourages investors. Therefore, Fortress Investment's latest move may not prove to be a safe bet going forward.

Fortress Investment currently carries a Zacks Rank #1 (Strong Buy). Other investment mangers worth considering include Lazard Ltd. LAZ, Calamos Asset Management Inc. CLMS and Noah Holdings Limited NOAH. All these stocks carry the same Zacks Rank as Fortress Investment.