Family offices have crossed the rubicon with bitcoin, believing it’s a safe haven

The interest of family offices in digital currencies is steadily growing as JP Morgan analysts say investors may be starting to look at bitcoin as a safe haven asset, along with gold. 

Grayscale Investments, the $9 billion manager of cryptocurrencies, says 10% of its total inflows came from family offices in the third quarter, against 4% over the previous twelve months.

We have long held that bitcoin shares characteristics with gold that make it desirable as a store of value – it’s scarce, verifiable, durable and fungible

Director Rayhaneh Sharif-Askary said family offices, more than ever, are keen to seek ways to achieve long-term wealth preservation against a backdrop of potential inflation and macro uncertainty.

She added: “We have long held that bitcoin shares characteristics with gold that make it desirable as a store of value – it’s scarce, verifiable, durable and fungible.”

Bitcoin lacks gold’s 5,000-year track record as a brand and demand for its use in jewellery and industrial products. 

But bitcoin is portable compared to gold bars and its supply is more rigorously capped. Gold ETFs are commonly used as a gold proxy, but they lack the security of bullion. 

JP Morgan has been warming to cryptocurrencies for some months. It recently launched Onyx, a supplier of crypto services. 

Over the five days, straddling news of a Covid-19 vaccine, the price of bitcoin has risen from $15,590 to 15,750 compared to a record high of $19,760 in 2017. The gold price fell from $1,960 an ounce to $1,863 over the same period.

On 6 November, JP Morgan published a research note which said gold ETFs have suffered modest outflows since mid-October, while the flow trajectory for Grayscale’s Bitcoin Trust steepened.  

 JP Morgan says: “This contrast lends support to the idea that some investors that previously invested in gold ETFs may be looking at bitcoin as an alternative to gold.” It believes that family offices are helping to drive the trade, along with a younger cohort of affluent investors.

On 9 November, US investor Stanley Druckenmiller, George Soros’ former associate, told CNBC he had invested in bitcoin while taking a bearish three-year view on the dollar. 

He stressed his gold allocation was “many, many more times” larger than his bitcoin position. But he conceded: “If the gold bet works, the bitcoin bet will probably work better because it’s thinner, more liquid and has a lot more beta.”

Renowned equity investor Bill Miller said on 6 November that he was “strongly” recommending bitcoin: “The bitcoin story is very easy, it’s supply and demand. Bitcoin’s supply is growing around 2.5% a year and the demand is growing faster than that.”

Hedge fund manager Paul Tudor Jones backed bitcoin earlier this year. In recent research, he said the world was set for a massive status change, following the pandemic. 

He calls it the change the Great Monetary Inflation which will involve governments printing endless quantities of fiat currencies to refinance oceans of debt.  In contrast, the supply of bitcoin has been capped.

Tudor Jones sees bitcoin as the “fastest horse” compared to other safe havens and capable of outperforming them all over ten years as digital currencies gain favour and bitcoin develops as a store of value in virtual wallets. 

To increase his flexibility, Tudor Jones intends to keep trading bitcoin futures to navigate “the most unorthodox economic policies in history.”

Former family office adviser David Nage, now a principal at service provider Arca, says the Federal Reserve’s balance sheet grew from $4.16 trillion to $6.95 trillion in the five months to July, due to its money printing. In contrast, the supply of bitcoin is growing by 2.5% a year. 

He says family offices are grasping bitcoin’s potential as a safe haven. 

Grayscale adds: “Compared to other institutional investors we find that family offices are more capable of moving quickly and nimbly to take advantage of opportunities, and it was certainly the case this year in regards to digital currencies.”