Veteran hedge fund manager Seth Klarman said Tuesday that his firm's investment in a key player in the crypto industry was a bet on cash, not the future of digital currency. Klarman's Baupost Group reported a $29 million stake in Coinbase at the end of the first quarter , but Klarman said on " Squawk Box " that it was a convertible debt investment and should not be seen as a bullish bet on Coinbase or crypto more broadly. "Our team is focused in the sector because there's been so much trouble in the sector, so we actually are invested in convertible bonds of Coinbase. And the convert feature is way out of the money, but the bonds are quite well-protected we believe by the balance sheet," Klarman said. Coinbase reported $5 billion in cash and cash equivalents at the end of the first quarter , compared with $3.4 billion of long-term debt. The company was sued by the U.S. Securities and Exchange Commission earlier in June for allegedly operating as an unregistered exchange and broker. Klarman said he struggles to see the long-term case for crypto and has decided to stay on the sidelines, other than the debt investment. "I've tried hard to understand the arguments and figure out why people are so excited about it, and I can't find value there. So, I'm not making a judgment that it might not go up. I have no idea," Klarman said.