Results from a survey conducted by Global Custodian and its sister publication The Trade Crypto, in partnership with blockchain security company BitGo, shows that endowments are one of the more active segments in crypto across all institutional investors, including asset managers, pension funds and hedge funds.
The survey, conducted in the fourth quarter of 2018, involved participation from 150 endowments.
- Percentage of endowments surveyed that took part in crypto-related investments in 2018: 94%
- How many expect their allocation to decrease in 2019, based on their experience to date? 7%
- How many expect their allocation to increase over the next 12 months? 55%
- How many expect their allocation to stay the same in 2019? 38%
- How many believe the endowment sector’s allocation to crypto-related investments will either increase or stay the same in 2019? 94%
- How many of the investments were direct into Bitcoin and other crypto assets? 54%
- How many were through a fund? 46%
- Respondents who label “regulations” as a top-3 concern: 75%
The crypto appetite among endowments is decidedly more open to alternative, riskier assets than their institutional peers because of a long-term strategy, the authors conclude. However, due to the crypto rollercoaster ride compounded by a lack of regulations, exchange hacks and general ongoing controversy over how the new asset class can truly fulfill the role of money, sentiment is skittish.
“Feedback from respondents showed that they find the space ‘exciting’ and ‘interesting’ as they appear cautiously optimistic about the long-term future of their crypto-related investment allocations.”
Participants also describe crypto investing as “too volatile” and scary. Major firms remain on the sidelines.
“Traditional asset managers – the likes of BlackRock, Vanguard and Pimco – remain on the sidelines due to a lack of regulatory clarity across the world’s major markets. This is not to say their interest has not been piqued, but volatility, liquidity concerns and an unfamiliar market infrastructure render the new asset class relatively untouchable, while regulatory uncertainty also persists.”
However, Forbes reports that BlackRock, the largest asset manager in the world with $6 trillion under management, may open the doors to crypto after a major reorganization.
“As news circulates that indexing giant BlackRock is reorganizing itself with an emphasis on higher-fee alternative assets, a few are beginning to believe that bitcoin could ultimately find its place among these nontraditional assets.”
BlackRock recently hired Robbie Mitchnick to its Digital Wealth team. Mitchnick, a former Ripple product marketer, is regarded as an expert in the space. His seminal paper, “A Fundamental Valuation Framework for Cryptoassets,” co-authored with Stanford Business School professor Susan Athey, lays out a Bitcoin and XRP price model.
The valuations may explain why heavyweights such as BlackRock have not rejected the space entirely.
According to the paper, the wide spreads are indicative of the highly speculative nature of cryptocurrencies.
High Estimates: $93,621
Low Estimates: $45,438
High Estimates: $32.91
Low Estimates: $6.37
The crypto survey report concludes that endowments are keen to explore these investments for their long-term gains, despite the risks.
“Given the nature of their investments and the long-term view to keep universities financially viable, cryptocurrencies and funds seem to fit their modus operandi, which will give confidence to those platforms hoping the asset class will be around and grow in the years to come.”
The vast majority of the participants, 89%, were US-based, with the remainder in the UK and Canada. You can download the full Endowment Crypto Survey report here.