BlockFi Sees Institutional Investors Emerging From the Crypto Closet

BlockFi has revealed the current state of crypto interest among institutional investors. They found that while interest was healthy and growing, it pales in comparison to the segment of the market that was not interested, or in the consideration stage.

Scanning public filings made by the roughly 40,000 registered investment advisors in the U.S., BlockFi found that of the ten thousand or so that manage the around sixty thousand private funds, namely hedge funds, private equity funds, and venture funds, only around one-sixth of the advisors had any association with funds involved with crypto.

The Crypto-Curious Find Exiting The Closet To Be A Concern

For an established fund to explore adding crypto to its portfolio, filing requirements are incredibly onerous. This has opened up the opportunity for crypto-focused funds to enter the void, competing with only a handful of established operators willing to dip their toes into the satoshi waters.

Currently, private funds with crypto exposure number a mere 201. That’s 201 out of 60,000 funds, representing a mere 1.3 percent. They include traditional hedge funds, crypto-only funds, and venture funds.

Among the traditional hedge funds involved in digital assets, only 18 of those with assets over $1 billion have crypto exposure. Their total assets under management amount to around $286 billion. Their direct crypto exposure is likely only a tiny fraction of their portfolios. Institutional investors are, after all, particularly cautious.

Crypto-only funds account for something like $2.5 billion total invested. The rest of the ecosystem includes: 

“…venture funds, market-makers, family offices, ultra high net worth individuals, sovereign wealth funds, sovereigns, overseas funds, etc.”

– BlockFi, Institutional OGs of Bitcoin

There are:

• Two managers whose literature suggests they are considering bringing crypto into their portfolios in the future (the crypto-curious)
• Fifteen who declare they never will (the crypto-phobic)
• Thirty-one who declare crypto investments would require a pre-declaration or approval (the crypto-cautious)
• Forty-one advisers that declare they do invest client money in crypto (the crypto-friendly).
• And 17 money managers who disclose crypto interest as a “risk” to their clients.

The Early Institutional Adopters

The list of funds that are crypto-only or crypto-heavy are names well known to most in the industry. Galaxy Digital, Pantera, Morgan Creek, Andreessen Horowitz, and Blockchain Capital all feature in the top ten. Interestingly, Morgan Stanley comes in at number 31.

The pivot toward crypto for historically conservative big money managers may have come in July of 2018, in the middle of the crypto winter, when Coinbase launched a custodial service for institutional money.

Certainly, entering at the bottom of the price cycle would have been a savvy move for institutional investors. Crypto custody has, rightly, been often cited as a primary reason for crypto-resistance among serious money.

Nigel Green of the deVere Group wrote for Forbes mid this year that crypto was the inevitable future of money and that institutional money had better get in before the going got too hot. He suggested investors were preparing to pounce:

“Major corporations, financial institutions, governments and their agencies, prestigious universities, and household-name investing legends are all going to bring their institutional capital and institutional expertise to the crypto market. The direction of travel has already been on this path, but there is a growing sense that institutional investors are preparing to move off the sidelines in 2019.”

– Nigel Green, Founder and CEO of deVere Group

Are We There Yet? Are We There Yet?

BlockFi’s findings suggest that the institutional pouncing has not occurred quite yet, although they describe the market as exhibiting signs that “there is already a large, healthy, and growing ecosystem of U.S. institutions that are in crypto.”

Crypto Briefing reached out to BlockFi to enquire as to whether it had any timeline data which would indicate the growth trend among pro-crypto institutional investors. Given the short history of the company and the level of institutional adoption, they were unable to provide such data. 

However, the full data set they provided showed that many of the funds BlockFi had on file demonstrated very early interest, registering as far back as 2012-13. There was a pick up in activity in 2018 and 2019, but funds were jumping on board regularly from 2012 onwards. 

1.3 percent hardly qualifies as large, despite the levels of growth and health among big money circles. Nevertheless, as recently as December 2018 a cohort of big money crypto advocates presented the SEC with a 63-page report pleading for the regulator to open the doors to publicly traded crypto funds. 

That has not occurred yet. But for 201 private money managers, waiting for approval for publicly available investment products hasn’t presented any obstacles to crypto-enthusiasm among institutional investors.

 

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