In this week’s issue, we continue the exploration of investing in digital assets. While it remains “risky business” for many family office investors, it hasn’t kept them away from seizing the opportunities when they present themselves.
And have you heard of the name Jason Palmer? Hint: He’s a presidential candidate who believes in the concept of conscious capitalism. Watch the video of my conversation with Palmer at the recent Activist Investor Conference, where he shared an interesting announcement.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: While digital assets remain risky, family offices still attracted to them
By TYRONE TOWNSEND
As digital assets such as bitcoin become more appealing to investors — including institutional players and high-net-worth individuals — family offices are turning toward digital assets, most notably cryptocurrencies.
According to Goldman Sachs data, 32% of family offices have ventured into cryptocurrencies, an increase from 16% in 2021. This surge correlates with the performance of bitcoin, which has seen its value soar by 154% over the past year.
Industry experts forecast that bitcoin could reach unprecedented heights, potentially hitting $170,000 after its anticipated halving event in April. The halving event, which occurs every four years, reduces the supply of new coins by 50%.
The allure of cryptocurrencies lies in their decentralization, potential for high returns and status as a hedge against inflation and economic uncertainty.
Now family offices are becoming increasingly interested in blockchain technology, the underlying innovation behind cryptocurrencies. They are drawn to the disruptive potential of the technology — which has applications across various industries, including finance, supply chain management and health care.
‘EXPONENTIAL’ GROWTH POTENTIAL
"One of the primary reasons family offices are increasingly considering cryptocurrencies is the exponential growth witnessed in the sector," said Zach Pandl, managing director of research at Stamford, Connecticut-based Grayscale Investments. However, he cautioned: "Family offices require a deliberate approach to cryptocurrency investments. Robust risk management practices, including secure asset custody and due diligence, are imperative to navigate the volatility inherent in cryptocurrency investments."
The maturation of infrastructure underpinning the cryptocurrency market has instilled confidence in family offices. Established cryptocurrency exchanges, custodial services and regulatory frameworks have enhanced the legitimacy and accessibility of digital assets, mitigating concerns about security and compliance.
"The introduction of ETFs signifies a significant influx of capital into the digital asset class," said Fizza Khan, CEO of New York-based Silver Regulatory Associates. "Rapid technological advancements in this sector have outpaced public comprehension. Regulatory uncertainties and resistance have hindered broader participation.
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“However, with easing regulatory resistance and the establishment of clearer frameworks, concerns regarding security and compliance for institutional investors and family offices have been mitigated."
While the precise allocation depends on risk appetite and investment objectives, some family offices are devoting a significant portion of their wealth to cryptocurrencies, viewing them as a long-term strategic asset rather than a short-term speculative bet.
“Updating the back-end technologies in financial infrastructure will pave the way for the widespread adoption of digital assets,” said Jake Claver, director of Dallas-based Digital Ascension Group. “This update would make traditional and digital financial systems interoperable, reducing siloed ecosystems. I anticipate this shift to occur around 2024 or 2025, marking a significant technological advancement.
“With the rise of ETFs for bitcoin, institutional investors and family offices now have a safer and easier way to invest, bypassing the complexities and risks associated with direct digital asset holding.
“Nevertheless, stability is anticipated to increase as more capital flows into cryptocurrencies. This evolution will likely attract more investors, including those who are cautious about seeking diversification beyond traditional assets. Additionally, advancements in blockchain technology, such as distributed ledger systems, could revolutionize traditional financial systems, providing real-time trading and mitigating risks associated with outdated infrastructure.”
Another driving factor behind family offices' interest in cryptocurrencies is the potential for portfolio diversification. Traditional asset classes, such as equities and fixed income, are susceptible to market fluctuations and economic downturns. Cryptocurrencies, with their low correlation to traditional assets, offer an opportunity to hedge against systemic risks and enhance portfolio resilience.
The recent approval of a bitcoin exchange-traded fund by the Securities and Exchange Commission is “a milestone for family offices seeking regulated exposure to cryptocurrencies," Claver said. "This signals a pivotal moment in our trajectory, as family offices increasingly recognize the potential of digital assets as part of their investment portfolios."
STILL RISKY BUSINESS
Family offices should remain mindful of the associated risks. The crypto market is notoriously volatile, with prices subject to sharp fluctuations driven by factors such as regulatory developments and the resulting uncertainty, technological advancements and market sentiment. Additionally, concerns regarding security and the potential for market manipulation persist.
"Family offices require tailored solutions that prioritize security and compliance," said Clark Read, head of trading at Gemini. "It is important to invest in enhancing our security and custody models to meet their distinctive needs."
Additionally, in collaboration with stakeholders and the investment management firm VanEck, Gemini is actively constructing a framework for spot bitcoin ETFs to address SEC concerns surrounding market manipulation and visibility.
VIDEO: Crain Currency’s Oliveri and presidential candidate talk conscious capitalism
Crain Currency Editor Kristen Oliveri sat down with Jason Palmer at the Activist Investor Conference in New York City, where this venture capitalist running for president spoke with her about two important concepts: conscious capitalism and common sense.
- Related reads: > Conference Call: Presidential candidate Jason Palmer pivots with launch of TOGETHER!
Palmer is no stranger to the ultra-high-net-worth world, working frequently with family offices in the venture capital realm and having once worked for the Bill and Melinda Gates Foundation. Given his experiences in finance and now politics (He did defeat President Biden in American Samoa), during their discussion, he announced the launch of his latest initiative, TOGETHER!
The full video chat on YouTube is below.