BANK OF AMERICA: Bitcoin is the 'most crowded' trade

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Being long bitcoin is the most crowded trade in the world, according to a fund manager survey conducted by Bank of America Merrill Lynch.
The cryptocurrency has surged higher in recent weeks as a handful of exchanges have started transacting it, offering an increased level of legitimacy.

Managers of large funds can't help themselves from chasing the explosive returns offered by bitcoin.

Their surging interest has made owning the scorching-hot cryptocurrency the market's most crowded trade, according to a Bank of America Merrill Lynch survey of 203 fund managers overseeing $558 billion.

That so many traders are rushing to get bitcoin exposure should come as little surprise, considering its astronomic rise in recent months. The cryptocurrency's value has increased roughly 1,800% versus the US dollar this year, growing its market cap to more than $300 billion, according to CoinMarketCap.com.

Specifically, 32% of investors surveyed in December said they viewed being long bitcoin as the most crowded position. Coming in second place is the long FAANG (Facebook, Amazon, Apple, Netflix Google) and BAT (Baidu, Alibaba, Tencent) trade, with 29% of responders mentioning it, BAML's data showed.

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Bitcoin's recent rise has been aided by measures to allow a more widespread adoption, including the recent launch of futures trading by the exchange group Cboe Global Markets. Over the weekend, CME Group also commenced the trading of futures, while Nasdaq is preparing a launch for the second half of 2018.

Still, there's a growing chorus of market experts who don't see bitcoin as a viable long-term investment option.

Last week, Belinda Boa, BlackRock's head of active investments for Asia-Pacific, said the cryptocurrency was showing "bubble-like valuations," Bloomberg reported. That echoed comments by Janet Yellen, the outgoing chair of the Federal Reserve who called bitcoin a "highly speculative asset" at a recent press conference.

Further, the Nobel-winning economist Paul Krugman told Business Insider in an interview last week that bitcoin was a more obvious bubble than the most recent housing crisis.

Rounding out the top three most crowded trades in BAML's study is the short volatility trade — one that pundits have flagged as a potential weak spot for markets.

While the trade itself is essentially a wager that the market will continue to sit still, they see it as reflecting a potentially dangerous level of investor complacency.

This chart shows the evolution of the BAML survey's most crowded investment, with bitcoin reclaiming the reins in December after two months of being overtaken by the long Nasdaq trade.

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