As you may know, this week I’m reporting from the Paris Blockchain Week summit.
Actually, I’m currently reporting from my departure gate at the airport… and now from on board the plane.
But back on topic, the best discussion I saw yesterday was called “State of the art: institutional investments in the crypto space”. As you can probably tell from that title, it was about…
We hear a lot about “institutional money” coming into crypto. It’s sort of like fusion power or real-world use of graphene or carbon nanotubes.
When it eventually arrives, it promises to change everything. But that’s the thing, it never does arrive. “Graphene can do anything… except leave the lab”, people like to quip.
As for institutional money in crypto. Is that just a pipe dream, too? And will it really make a big difference when it does get here? I’ll relay what I heard yesterday and let you decide.
When asked as an opening question how he would describe how US institutions view crypto assets right now, Morgan Creek Capital’s founder and chief investment officer Mark Yusko said, “two words: fear and loathing.”
So, not a great start then.
But he followed up with the proclamation that eventually crypto will replace all traditional assets.
The general consensus of the panel was that right now it’s very difficult for institutions to invest directly in crypto. The custodial solutions and regulatory clarity simply aren’t there yet.
They all agreed that the only places really investing directly into crypto now were hedge funds, high frequency/algorithmic traders and venture capitalists (VCs).
The interesting thing they said was that at the moment institutions are investing in “hygienic investments” within the space. That was a term David Fauchier of Cambrial Capital used.
He said the only way institutions can invest in the space today is by buying “picks and shovels” (oh how investors love to use that term).
So these hygienic investments are basically buying equity in real companies that work in the crypto space. But not in the actual crypto assets.
Because this is the only way institutions can get these companies bid up to massive valuations.
But as he explained, you merely end up paying much more for the same type of exposure: if crypto goes up these investments make money. If it goes down, they lose money.
In this way, individuals have an advantage over institutions right now. We can buy into the asset directly. Most institutions can’t… yet.
“Security tokens will chance the world for institutional investors”
Yusko said that for the first time in his career, he’s found an uncorrelated assed in bitcoin.
All traditional asset classes are closely correlated, but not bitcoin. In both the bull and bear market it remained uncorrelated with traditional assets. For him, this is a big deal.
Then at this point he kicked it up a notch.
He started reeling off facts and figures like someone in an Aaron Sorkin production. You know in his shows when people can seemingly reel off facts and insights most of us would have to spend hours researching… Yusko started doing that.
He declared that security tokens will change the world for institutional investors and went into why.
The compare asked why endowments are getting into crypto and Yusko listed off the average yearly gain of different investors:
Individual investors: 3.5%
Top endowments: 12%
If you’d just bought and held stocks, you’d have done much better than the average individual investor who swaps and changes too often he said.
But his main question was, how could endowments outperform everyone else by so much. His answer: they overweighted innovation as an asset class.
And all innovation, he said, is in new technology… The mainframe, the microprocessor, the desktop computer, the laptop, the internet, the mobile phone, and now “the trustnet”.
This is a term he coined for crypto. And he believes, as a man with decades of investment experience at the very highest levels, that by 2024, the “trustnet” will be the greatest wealth creation event we will ever see in our lifetimes.
Those are his words.
Then came the, “want are you doubling down on in 2019” question.
This was when Yusko revealed some things about Morgan Creek’s digital asset fund. The fund raised $40 million, and counts six institutions and two public pension funds among its clients.
Up until six weeks ago the fund was only investing in companies that work in crypto, and other funds, but not crypto itself.
He then dropped a bombshell. Six weeks ago his fund bought into bitcoin, for the first time, when it was at around $4,000.
And as I said yesterday, this was right around the time market sentiment in crypto changed.
Here’s how he said the fund is allocated:
70% is equity in businesses
15% is in other funds
15% directly in bitcoin
This fund was only created with $40 million.
The thing he said he would be doubling down on for 2019, was the creation of a new digital assets fund, and this one was going to be $250 million to $300 million.
He closed by saying he has only seen this much talent migration one other timer in his while career. That was the migration of finance whizs into tech in the early 90s.
And we all know the mega bull market that created.
So, is institutional money coming for crypto? Yes, and it’s going to change everything.
If you want to find out how to invest in crypto for yourself, and learn which cryptos I believe will offer the best returns over the next few years, you need to start reading my monthly newsletter: Crypto Wire.
It comes free when you take out a trial to Frontier Tech Investor. Not only that, but you’ll also get a free copy of Nick O’Connor’s book, The Exponentialist, too.
If that sounds like something you might be interested in, you can get everything you need here.
Okay, that’s all I have time for today, the cabin crew are insisting I close my laptop for landing.
More revelations from Paris Blockchain Week next time.
Editor, Exponential Investor