Investment

Up to 25% of family offices invest in cryptocurrencies – many more are likely given developments

At least 10%, possibly 25%, of Swiss family offices now invest in cryptocurrencies, says Chris Thomas, head of digital assets at Swissquote Bank.

All 26 of the top-performers in a Nilsson Hedge universe of hedge funds – with returns of 200%-plus – are crypto traders. Wealth advisers are steadily building crypto into asset allocation models. 

Family offices typically allocate $5 million and $10 million in crypto – sometimes more – as a hedge against fiat currencies or a next-gen initiative

All this, and much more, means institutions are starting to see crypto as a valuable source of future profits. Swissquote intends to become the first custodian bank to enter prime broking at the end of the first quarter. Goldman Sachs has reversed the negative stance it took in 2020. 

This activity should reduce the extreme volatility of crypto markets, particularly bitcoin, as buying and selling increases. But, as Goldman Sachs points out, they need to travel further along the institutional road to hit maturity.

Thomas is reasonably certain 10% of family offices from his circle invest in crypto.  But he believes the total across Switzerland could be closer to 25%.  

He says family offices typically allocate $5 million and $10 million in crypto – sometimes more – as a hedge against fiat currencies or a next-gen initiative.

Their confidence was tested by a 2021 roller coaster ride for cryptocurrencies which saw bitcoin starting January at $30,000, surging to $40,000 in a fortnight, then falling back to $35,000. 

As profit taking developed, UK and New Zealand regulators warned retail investors that buyers of crypto products risked “losing all their money”.

But Thomas agrees institutions will play a growing role in stabilising the crypto sector, now its overall value is hitting the magic number of $1 trillion. 

Listed Swissquote Bank, a Manchester United FC sponsor, is playing its part by offering custody and trading services. Its institutional clients include US-based ETF provider Wisdom Tree which has assets under management of $68 billion. 

It also offers clients access to Lombard loans secured on crypto, at up to 30% of value.

Thomas confirms Swissquote intends to provide crypto lending and borrowing services. A bitcoin lender could expect a fee of 6% to 8%. But the service should be more reliable, and cheaper, than facilities currently available. 

Shorting would provide investors with an alternative to naked physical sales, thus reducing volatility. Trading on the nascent CME crypto futures market has hit a record, providing another way to trade the market. 

As regards institutional deals, Thomas points out US insurer MassMutual has bought bitcoin worth $100 million, plus a stake in fintech prime broker NYDIG. 

Mike Novogratz’s family office Galaxy Investment Partners is a big crypto investor. He says MassMutual was a “huge” deal for crypto.

Northern Trust is seeking to follow Swissquote into prime broking, in a partnership with Standard Chartered. They have formed Zodia, a crypto custodian offering investor services. 

Standard Chartered chief executive Bill Winters played a leading role at JP Morgan in developing credit derivatives. He believes the global rollout of crypto is inevitable, leading to the development of new markets, like carbon trading. 

JP Morgan, an established prime broker has created a digital arm called Onyx.  Chief executive Jamie Dimon’s recent hostility to crypto has faded: JP Morgan analysts say the bitcoin price could hit  $150,000 over time as it achieves safe-haven status.

Fidelity is an enthusiastic crypto investor. DBS of Singapore has set up a trading platform for cryptocurrencies.  BBVA is in a second wave of bank providers, testing out digital trading and custody to clients, initially in Switzerland.

State Street has invested in software firm Lukka which plans to develop crypto indices with S&P Global, essential to institutional benchmarking

Morgan Stanley has popped up as a 10% investor in Michael Shayler’s crypto investor MicroStrategy. Eight former Morgan Stanley executives led by Jack Tao have started Phemex, now building a Singapore crypto derivatives platform called XRP. 

Goldman Sachs was hostile to crypto in 2020 but it has now started to invest in the sector. Crypto adviser Coinbase has earmarked Goldman to advise on its upcoming IPO.

On 12 January, Jeffrey Currie, Goldman’s head of commodities to research, agreed the market was showing greater maturity but added institutional interest needed to develop even faster. 

For the bulls, Swissquote’s Chris Thomas said there is a clear ceiling on the quantity of bitcoin which can be mined. 

He argues this will lead to an overspill of investment capital into related areas, such as security tokens, over time. Swissquote has set up a tokens platform to secure opportunities.

For the bears, billionaire Mark Cuban, an extensive investor in media assets, says this year’s surge in crypto has reminded him of the dot com bubble. 

He is not alone.

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