Institutional investors should consider cryptocurrency: Cambridge Associates

February 20, 2019


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According to Boston-based Investment consulting firm, Cambridge Associates, cryptocurrency represents a solid investment option for institutional investors.

A report by Bloomberg on Monday suggests that the company expressed the view by way of a research note which it published.  Cambridge Associates is well regarded in the industry and has over $300 billion of funds under management.  It provides investment portfolio management and advisory services to corporate, government and institutional clients.

In the note, the firm asserts:

“Despite the challenges, we believe that it is worthwhile for investors to begin exploring this area today with an eye toward the long term.”  The analyst added, “though these investments entail a high degree of risk, some may very well upend the digital world”.

The nascent cryptocurrency space provides for an asset class that represents quite a different proposition by comparison with assets in the conventional investment sphere.  Institutional investment has long been expected to arrive in cryptocurrency circles.  Whilst there have been some signs of its arrival, in the main, it has remained elusive.

With fund managers being conservative in terms of managing risk, it is thought that additional risk factors associated with digital assets (most notably, custody and storage requirements) are the main causation for their apprehension in getting involved with the emerging asset class.  This is compounded by a regulatory framework that is in a state of development.

In line with that, Cambridge advise those who are prepared to take on the prospect of cryptocurrency investment to take “a considerable amount of time learning about the space”.  It expands on this by suggesting that all the different approaches to investing in cryptocurrency should be investigated, including such mechanisms as illiquid venture capital funds and simply purchasing digital asset tokens on cryptocurrency exchanges.

‘Bitcoin will be Digital Gold’

Mike Novogratz, CEO and founder of Galaxy Digital – a merchant bank which specializes in the digital assets and blockchain industry – believes that institutional investment will follow in the short to medium term. Novogratz, a well known personality in the cryptocurrency space, made the comments whilst speaking on Bloomberg Daybreak: Middle East.

“It’s not U.S. money, it’s not Chinese money, it’s sovereign”

Novogratz articulated that the industry is in the process of a handover from retail to institutional investors.  Cryptocurrency emerged with tech enthusiasts and individual retail investors.  However, Novogratz states that our “retail friends that came up and down [with the 2018 bear market] are washed out” and that the process of “handing off ownership from retail to institutions” is imminent.

Expanding on the subject, he says that institutions won’t “rush in on day one”.  Rather, they will take their time and let some “water run through the pipes” as he puts it, before they buy in.

Ultimately, Novogratz concluded that Bitcoin will be digital gold, providing a mechanism whereby “you have sovereign money”.  “It’s not U.S. money, it’s not Chinese money, it’s sovereign”, he said.  “And so sovereignty, it costs a lot.  It should cost a lot.”

There has been some modest moves towards institutional investment.  Last week it emerged that Morgan Creek Digital had onboarded two public pension funds in investing in a crypto fund – a first for the industry.

Throughout 2018, there was speculation with regard to the approval of a cryptocurrency-based exchange traded fund (ETF).  That has remained elusive.  However, earlier this month, one of the Securities and Exchange Commission’s (SEC’s) commissioners – Robert J. Jackson – stated in an interview that whilst approval may take time, it is inevitable.

The emergence of Bakkt – a company founded by the Intercontinental Group – owners of the New York Stock Exchange (NYSE) – is also likely to facilitate institutional investment.  The launch of the service has been delayed a number of times – most recently due to the government shutdown.  When it commences to trade, the company will offer physically backed Bitcoin futures, together with digital asset custody solutions.

The research note from Cambridge has a definite positive overtone with regard to cryptocurrency investment.  The analyst stated:

“The dramatic declines that swept across the crypto space raised questions about the future of these assets and the blockchain technology that underpins them.  Yet in looking across the investment landscape, we see an industry that is developing, not faltering.”


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