As 'crypto winter' thaws, family offices take mixed approach to sector
In the wake of the crypto winter — a "Game of Thrones" reference to a period in 2022 marked by a steep decline in cryptocurrency prices and the failure of several stablecoins — family offices are taking a mixed approach to the sector. While some are cautiously dipping their toes back in, others are jumping in head-first — and some avoiding the sector altogether.
Though it tends to be a volatile sector amid uncertainty over future regulation, things are definitely looking up. Bitcoin is far off its all-time high of $68,000 in 2021, but it’s trading up 68% since the start of the year. A Standard Chartered analyst recently predicted that ethereum could climb 400% and reach $8,000 by the end of 2026.
The percentage of family offices invested in cryptocurrencies rose from 16% in 2021 to 26% in 2023, according to a Goldman Sachs Family Office Investment Insights report last month. Yet the share of family offices that have not invested in crypto or are not interested in investing in the sector jumped to 62% from 39% during that period, and the share of offices that said they were considering future crypto investments plummeted from 45% to 12%.
“Many of our wealthiest clients [more than $100 million in assets] are willing to allocate a small portion of their portfolio, such as ½%, to very risky investments [like crypto], with the understanding that there is a good chance that it goes to $0,” said Jon Ekoniak, a partner at Bordeaux Wealth Advisers, a multi-family office in Menlo Park, California.
"But if it is successful, it could generate a very generous return."
Others are experiencing fear-of-missing-out as the sector rebounds. “A lot of the family offices I work with didn’t get in a few years ago,” said Ben Wiener, the founder of Benaiah Capital in Sioux Falls, South Dakota, an investment firm focused on digital assets. “They got talked out of buying bitcoin at $60,000, and they’ve been wanting to buy it.”
Recently, Wiener gave a presentation to 57 private family trusts in South Dakota and was approached afterward by a woman whose family has a $1.5 billion portfolio. “She said: ‘Nice job. I think that you’re onto something here. People thought I was crazy when I bought gold at $200 in the '70s.’ ”
The trust ended up investing $20 million with his firm, Wiener said.
That’s in contrast to the trend at family offices, where “next-gen family members are definitely the ones who are some of the loudest voices in the investment community and don’t have to defend their positions [on crypto] as loudly as they once did,” said Michael Sonnenshein, CEO of Grayscale Investments, the world’s largest digital currency asset manager.
In his experience with family offices and retail customers, Sonnenshein said that “there is now a widely held belief that crypto as an asset class is here to stay” and that investors have been buoyed by the relative stability of prices and the lack of volatility, prompting greater diversification beyond just bitcoin and ethereum.
Others have been avoiding the sector. “We have not been getting back into crypto, and I haven’t heard much from family offices that are,” said Maximilian Winter, a fourth-generation entrepreneur who invests from the Winter Family Office, which has offices in Switzerland and the U.S. Winter's peers are letting the space “cool off for a while, as they had already spent a disproportionate amount of time on it,” Winter said. He expects the sector “will bounce back during the next upswing.”
Much of that depends on the regulatory landscape, which remains unclear right now, though the Biden administration is taking a tougher stance. Securities and Exchange Commission Chairman Gary Gensler has said that he will aggressively pursue enforcement actions and that Congress should consider a law to regulate crypto exchanges.
“It is likely that family office interest in crypto will increase with respect to any decisions made by the SEC or approves spot bitcoin [an exchange-traded fund],” said Shane Rodgers, chairman and CEO of PDX Advisers, a New York-based investment unit of Singapore-based PDX Global.
And Grayscale's Sonnenshein is optimistic “that we could see some increased clarity from our legislators that the market deeply deserves and has been waiting for,” pointing to bipartisan support for several crypto bills in Congress.
Family offices see that “regulation still has a little way to go,” said Wiener. “But it’s on its way, and if you wait to get into the sector, it’s too late.”