Are Family Offices Investing in Cryptocurrencies?

As of July 14th, Bitcoin has a total market capitalisation of 170.4 billion USD with a price of 9,246 and a circulating volume in the last 24 hours of 18.6 billion USD. On July 14, 2017, these figures were 36.7 billion USD, 2,233, and 882.5 million respectively. In other words, they grew by 364%, 314% and 2007%. Whatever one’s opinion towards ‘digital assets’ and ‘cryptocurrencies’, these are not numbers to scoff at.

Bitcoin’s Price Now


This article will review the implications of this success in the context of family offices. Why? Because these are the engines investing for highly concentrated pools of capital with (1) exceptionally long time horizons, (2) higher risk tolerances and (3) uniquely entrepreneurial thinking. They are the legacies often looking ahead and above the crowd.

In the 2019 edition of The UBS Global Family Office Report, they noted that 57% of their respondents believed blockchain technology—the basis of Bitcoin—will fundamentally change how we invest in the future. In particular, Tyler and Cameron Winklevoss are famously known to have once intended to buying 1% of all bitcoin in existence (which is to say they may now have that and more). You may know them as the “Bitcoin Billionaires”.

Winklevoss Capital is a family office and venture capital firm expressly focused on allocating capital to start-ups, with a clear preference towards blockchain, artificial intelligence and other innovative, online-based companies. Think Aloha, creating a plant-based, vegan lifestyle; BlockFi, enabling cryptocurrency holders to earn interest and borrow USD against their holdings; Eaze, leading the business of medical marijuana delivery; and Gemini, a very-easy-to-use bitcoin and crypto trading platform founded by the Winklevoss brothers themselves.

Pantera Capital, run by crypto thought leader Dan Morehead, invests exclusively in cryptocurrency and blockchain. They have 500 million across three venture funds and four cryptocurrency hedge funds, open to accredited investors who can offer at least 100,000 upon joining. Think Bakkt, which can convert arbitrary digital assets like airline miles into cash, or Ripple, whose blockchain network enables real-time payments.

The more wealthy families and accredited investors invest in the future of blockchain, cryptography (the art of encryption and security) and cryptocurrency, the stronger the foothold of Bitcoin. Retail investors will catch on and begin to see the growing number of people willing to trust that cryptocurrencies will become more stable over time. Circulating volumes will increase, alongside prices, and ultimately market capitalisations.

Which forms the foundation of a positive upward spiral, because Bitcoin has close to a zero correlation with traditional asset classes, such as stocks and bonds. Implementing a zero correlation asset into a portfolio tends to improve its risk-adjusted returns, because it adds the possibility of greater profits while adding little or no volatility. A zero correlation implies no movement at all when a traditional asset class is moving up or down. Bitwise Asset Management provided a great study into the effect of adding bitcoin to a traditional portfolio of 60% stocks (Vanguard Total World Stock ETF) and 40% bonds (Vanguard Total Bond Market ETF).

Source: Bitwise Asset Management

The recommendation of Deltec Bank & Trust echoes the study of Bitwise: add a modest percentage of bitcoin into your portfolio to increase your return per unit of risk, as indicated by the Sharpe ratio. In an environment of declining or negative real interest rates and unending monetary stimuli (money printing), a growing asset with guaranteed scarcity is a rare thing indeed.