A multi-billion dollar investment advisor has launched a new cryptocurrency index fund built specifically for institutional investors, and the assets that aren’t included in the fund will likely raise more eyebrows than those that are.
Announced on Tuesday, the Digital Asset Index Fund has been developed in partnership by Morgan Creek Digital Assets — the cryptoasset-focused arm of Morgan Creek Capital Management– and Bitwise Asset Management, the cryptocurrency investment firm who will manage the fund.
“Increasingly, institutional investors are coming to us asking for exposure to the space,” said Mark Yusko, CIO at Morgan Creek. “We wanted to create a vehicle tailored for those investors.
“Every investor should be considering an allocation to digital assets right now,” added Yusko, who has in the past said that he believes the bitcoin price could eclipse the $1 million mark over the next several decades.
Cryptocurrency index funds are not new, and a variety of firms (including Bitwise) have launched these market-tracking investment vehicles over the past year to help wealthy investors diversify their portfolios through exposure to cryptoassets.
However, Bitwise CEO Hunter Horsley told CCN via email that this fund is uniquely positioned to attract institutional investors due to Morgan Creek’s clout within the asset management space.
“Mark Yusko and Morgan Creek have spent more than a decade working with institutional clients and earning their trust. Over the last few months, several have approached Morgan Creek asking for help getting exposure to the digital asset space. They came to us to create this vehicle for that purpose. The new index and fund combine Bitwise’s best-in-class quantitative indexing rules, with the addition of ongoing oversight from an active index committee including Mark and Anthony [Pompliano] from Morgan Creek.”
Separately, Morgan Creek Digital’s Anthony Pompliano remarked in a statement that the fund’s launch was well-timed, as institutions interested in cryptoassets see this year’s market pullback as an opportunity to make a strategic entry into the asset class.
“Institutional investors are seeing the market pullback as an opportunity start building exposure to the space, and have been pushing us to get this fund to market quickly,” said Pompliano, a partner at the firm. “We’re excited to have The Digital Asset Index Fund up and running, creating a one-stop shop for institutional investors intent on securely capturing the significant value creation taking place in the crypto market today.”
This particular fund has stricter eligibility requirements than most other cryptocurrency indices. Qualifying assets may not have more than 90 percent of their 30-day trading volumes concentrated on a single cryptocurrency exchange, and the fund may also exclude, per the advisory committee’s discretion, coins that have “known security vulnerabilities” or “undue exposure to 51% attacks.” Also absent from the index are stablecoins like tether (USDT), whose values are pegged to another asset.
Most significantly, though, the index excludes cryptoassets in which 30 percent or more of the circulating supply is “held by the protocol’s foundation or related operating business,” a requirement that will largely exclude initial coin offering (ICO) tokens.
At launch, the fund includes market cap-weighted positions in bitcoin, ethereum, bitcoin cash, EOS, litecoin, dash, zcash, monero, ethereum classic, and OmiseGO, with monthly rebalancing to ensure that the fund accounts for market shifts. All funds will be held in cold storage by regulated custodian Kingdom Trust, which was recently acquired by cryptocurrency storage service BitGo.
One notably-absent coin is ripple (XRP), the third-largest cryptocurrency with a circulating valuation of nearly $14 billion. Its lack of inclusion stems from the fact that San Francisco-based blockchain startup Ripple controls more than half of the total XRP supply, funds that are locked in escrow and released to the company on a monthly basis.
Despite this close association, Ripple has increasingly sought to distance itself from XRP through actions such as supporting an initiative to rebrand XRP (its former logo was the same as the Ripple company’s) and arguing publicly that its relationship with XRP is akin to Saudi Arabia’s ownership of oil.
Bitwise’s Horsley told CCN the decision to exclude the token “doesn’t target XRP specifically, but rather takes the view that public blockchains with a material amount of supply held in a central entity via pre-mine…have additional risks around regulation, incentives, and liquidity.”
Also absent from the index are stellar, cardano, IOTA, and tron — all large-cap assets that regularly rank among the 10 most valuable cryptocurrencies but fail to meet all of the eligibility criteria.
Like other cryptocurrency index funds, the Digital Asset Index Fund is restricted to accredited investors, and the $50,000 minimum initial investment will price out casual buyers.
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Last modified: May 20, 2020 6:04 PM