Day 2 at Block-Con 2017 had a panel of particular interest to our clients. The panel, entitled “Family Office Perspective on Investing in Cryptos & ICOs,” featured J. Alan Reid Jr from Arista Group, Sam Englebardt from Galaxy Investments, Kavita Gupta from Consensys and Will Peets from Passport Capital.
Family offices find themselves in an unusual position with respect to cryptocurrencies. Historically, family offices have found themselves at a disadvantage compared to institutional investors who have significantly more capital to deploy and therefore have an edge in many investment opportunities. This is not the case with cryptocurrencies.
We are still in the nascent stage of digital tokens and there is a material chance that an investment in any token could result in a total loss, either because of fraud, security breach, or some other reason. Accordingly, Mr. Englebardt says that institutional investors may feel uncomfortable exposing someone else’s capital, as opposed to their own, to this risk. He adds that family offices offer a good bridge from retail investors, who have until now largely dominated the cryptocurrency market, to eventually, institutional buyers.
Mr. Reid Jr. noted that family offices do not have the same fiduciary duties and regulatory requirements that many institutional investors have. He adds that all family offices are different and all they need is one family member to become engaged in the industry for the family office to dive in. This contrasts with certain larger institutions that need approval from multiple people at different levels across the institution and may be limited by regulations.
When asked what family offices are looking for, the consensus was that they take an approach similar to venture capital. They look at factors, such as team, existence of market, and stage of development. Mr. Peets noted that many investment opportunities were coming internationally, as opposed to technological investments that have historically originated in the Silicon Valley. He further noted that it is prudent to have only a small percentage of a portfolio invested in digital tokens because of the high risk, but from a risk management perspective, digital tokens represent a unique asset class with minimal correlation to other assets.
Overall, the panel saw family office involvement as very positive for the cryptocurrency industry. Moreover, Mr. Peets noted that investment opportunities are returning to a more rational level relative to where they were earlier in the year because token projects have a better idea of what investors are expecting and we now have some regulatory clarity. However, it is important for family offices, and investors generally, to be cautious and exercise discretion as they consider any potential investment. We at Digital Asset Research echo these sentiments and are happy to talk with any family offices who are interested in learning more.