*By Tanaya Macheel* Morgan Creek Digital has partnered with Bitwise Asset Management to create a fund designed to give institutional investors access to crypto, or “digital,” asset classes. The fund includes the top 10 largest digital assets weighted by market capitalization, excluding those with 30 percent or more of their supply sitting in centrally controlled foundations (or pre-mined assets). For example, Ripple, retains some 55 percent of its native asset supply (XRP) in the Ripple Foundation, and Stellar, a fork of the Ripple project, keeps 81 percent of its native asset supply (lumens) in the Stellar Development Foundation ー both are ineligible for the Digital Asset Index Fund. “There’s governance risk, there’s a high degree of centralization, there’s regulatory risk — all kinds of stuff that could occur there,” Anthony Pompliano, Partner at Morgan Creek Digital, told Cheddar in an interview. “If they go below that 30 percent threshold they could be up for inclusion." Other eligibility requirements for allowable crypto assets include custody qualifications and trade concentration. All assets are kept in cold storage — or offline, so as to reduce the threat of hackers — and are audited annually. The fund tracks a newly created index that builds on Bitwise’s methodology around quantitative indexing and rules-based exposure to help investors effectively navigate complexities that are specific to the crypto space, like trade volume and concentration. Cryptocurrencies have come under a great deal of pressure this year after a stellar run in 2017. After peaking at $20,000 in December, Bitcoin prices have fallen about 65 percent and now sit just below $7,000 a coin. Ethereum has fared worse, dropping more than 75 percent in value, and Litecoin is down more than 80 percent. The 2018 “bear market” in the industry may give many the impression that the cryptocurrencies and digital assets are struggling or that people are losing interest and confidence, but Bitwise CEO Hunter Horsley said institutional investors prefer the climate of this year to last and are using it as an opportunity to get comfortable with this new asset class. “They like that things are less hectic, less manic, and are more rational,” he told Cheddar. “They like seeing the market can come off the highs of last year and not just evaporate, and they like being able to enter at a lower price. Some institutional investors had specific lows they wanted to see before entering.” Clients of Morgan Creek Capital Management, which manages more than $1 billion in assets, have been asking for help getting exposure to the crypto digital asset space over the past few months, according to Pompliano. The firm’s view is that every institutional investor should be considering an allocation in crypto now. Bitwise will manage the new fund with the ongoing oversight of an index committee that includes Pompliano, Morgan Creek CIO Mark Yusko, and Bitwise global head of research Matt Hougan. The Digital Asset Index Fund is available to approved institutional and accredited investors including endowments, foundations, pensions, wealthy families, and sovereign wealth funds.
