Last year, the “institutions are coming” narrative became heavily cited in the Bitcoin and crypto space. You see, back then, investors were grasping for straws, trying to find some glimmers of hope in a roaring bear market.
Unfortunately, the narrative wasn’t and purportedly still isn’t entirely accurate. A prominent industry commentator and cryptocurrency fund manager recently argued that nearly all the family offices he surveyed are not in the spot digital asset game. Yikes.
Family Offices Aren’t Holding Bitcoin and Crypto
Back in 2017, the Family Office Association’s Angelo Robles claimed in an interview with Bitcoin.com that single-family offices have started to adopt Bitcoin, purportedly to try and diversify their portfolios to hedge against risk.
According to a recent tweet from Spencer Noon, a partner at DTC Capital and industry commentator, this might not be true. Citing his anecdotal discussions with 30 family offices that have assets under management of over $1 billion, he claimed that only one office holds spot cryptocurrency.
This contradicts the popular narrative that the “institutional herd is here”.
Just heard this stat from an investor at an event with 30 Family Offices, all with $1B+ AUM:
Only one Family Office holds any crypto directly.
— Spencer Noon (@spencernoon) August 26, 2019
Noon’s comment comes in stark contrast to what Coinbase’s CEO, Brian Armstrong, explained on Twitter earlier this month. As NewsBTC detailed at the time, the cryptocurrency entrepreneur suggested that there is no question that institutions are starting to make bonafide forays into “crypto”.
Citing data from his firm’s deposits, there is around $200 million to $400 million worth of cryptocurrencies deposited into Coinbase’s coffers each week from “institutional customers”.
Our analysis and extrapolation suggested that this means that a majority of the deposits that Coinbase’s platforms receive are institutionally-sourced.
Only a Matter of Time
It may only be a matter of time before such funds and their ilk come into the Bitcoin space.
For instance, Fidelity Investments — the prominent asset manager — found earlier this year that effectively half of the institutions that they surveyed believe that Bitcoin and crypto assets have a home in their portfolios. Yet, they currently see issues with security and custody, which may soon be solved through solutions like Bakkt.
Regardless, the case to include Bitcoin in traditional portfolios is clearly growing. Delphi Digital, a New York-based cryptocurrency market research outfit, published a similar argument in December of 2018, in the midst of Bitcoin’s 85% sell-off from the $20,000 peak.
In its seminal “State of the Network” report, the firm wrote that “using a simple tiered-allocation analysis,” a portfolio that is made up of 57% stocks, 40% bonds, and 3% Bitcoin yielded the highest Sharpe Ratio (a popular measure of a portfolio’s risk-return potential) and sported the smallest max drawdown in simulated scenarios.
The macroeconomic backdrop is also showing that Bitcoin — or at least an alternative system is needed.
China and the U.S. are currently duking it out, implementing tariffs and imposing interesting monetary policies. Hong Kong has been subject to months of unrest due to protests, resulting in a falling stock market. Foreign currencies are falling against the U.S. Dollar, with the Argentinian Peso shedding 15% on Monday. Global debt continues to set records, especially as nations continue to try and boost their economies through fiscal spending, and so on and so forth.
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