Cryptocurrency Investor Survey

On May 2nd, the Medici Conference was held in Los Angeles. The Medici Conference was the first cryptocurrency conference held exclusively for the institutional investment community. Before the conference, fund managers and capital allocators filled out a survey sharing their thoughts on the industry. I would like to share the results of that. I'll start with fund managers. Fund managers (20 funds were Interviewed) were asked about 4 areas:

  • About the survey respondents
  • Current activities
  • Institutional capital predictions
  • Digital currency market predictions

About the survey respondents

The majority of funds interviewed managed less than $50MM, but ~10% of funds managed more than $500MM. I expect the AUM numbers to be skewed because some of the funds interviewed were described as "venture funds". I don't know if this means they invest in cryptocurrencies for the long term or if they are set up as traditional venture funds. If this is the latter, then they can raise money from traditional LPs who aren't restricted by investment committee mandates and are comfortable with the traditional venture model. More than 50% of the funds interviewed had a majority of non-institutional LPs, but ~15% of the funds had more than 50% of their LP base as institutional investors. Lastly, ~50% of the funds listed considered their investment style as venture while ~30% were quant-based, and ~20% were discretionary trading. 

Current activities

~65% of fund managers raised less than $25MM over the past 6 months while ~25% raised more than $50MM. This supports my theory that the biggest increase in AUM by cryptocurrency fund managers wasn't because of fundraising, but past results. ~75% of fund managers believe that the fundraising environment will improve over the next 6 months. ~50% of fund managers had the majority of their funds made up of Top 25 tokens. My favorite statistic was that one fund reported owning 60 tokens in their portfolio. More than ~40% of fund managers said valuation metrics are useless while ~50% said we look at them, but they aren't great. Fund managers were spilt on their sources of alpha. ~45% voted proprietary research and valuation metrics, ~25% industry relationships, ~20% internal technology platform, and the rest voted superior data. Lastly, ~70% believed that the correlation between stocks and cryptocurrency is less than 25%. 

Institutional capital predictions

The mean percentage of institutional ownership in cryptocurrency in 12 months will be ~15% while ~90% of respondents believe that will take at least more than two years before the mean percentage of institutional ownership in cryptocurrency is above 70%. ~60% of fund managers believe that custody is the biggest hurdle for institutional investing while ~20% believe it's regulation. I used to be in the custody camp, but I now believe the biggest issue is "headline risk". Custody is only an issue because the media makes such a huge deal about hacking and reports negatively on the space. If custody was such an issue then why aren't institutions investing in BTC futures? The exposure will be nearly identical to BTC, but without the custody issues. 

Digital currency market predictions

The mean price prediction for BTC in one year was ~$30,000 while the mean price prediction for ETH was ~$1,500. I am not a fan of price predictions especially due to the lack of tools and formulas around valuing cryptocurrencies. Many people are most likely making predictions rooted in emotions rather than fundamentals. ~65% of respondents believed that the most promising geographic area of cryptocurrency would be North America. I didn't like this question because Europe wasn't listed as a choice. Respondents could only choose North America, Asia, or other. Many cryptocurrencies are in Zug, Switzerland and until regulations become clearer in the United States, I expect Switzerland to remain a haven for cryptocurrency companies.

Fund allocators (20 fund allocators) were interviewed about 3 areas:

  • About the survey respondents
  • Current activities
  • Digital currency plans
  • Digital currency market predictions

About the survey respondents

More than 50% of the respondents managed over $1B while ~20% managed over $20B. ~40% of funds interviewed allocated more than 50% of their capital to alternatives while ~20% allocated 30-50% of their AUM to alternatives. ~70% of the allocators interviewed focused on private illiquid investments. 55% of respondents were family offices while ~15% were pension funds or endowments. 

Current activities

~70% rated their knowledge of cryptocurrency to be either advanced or intermediate. ~45% of respondents rated potential for high returns as what was most attractive about crypto assets while ~45% rated investing in disruptive technology as their primary reason. ~75% of respondents invested $1-$25MM in crypto assets while the rest have no allocation to the space. 

Digital currency plans

~31% plan to allocate to active strategies, while ~37% plan to allocate to passive strategy and the rest plan to invest in-house. ~75% of respondents plan to increase their allocation in cryptocurrency over the next 12 months.

Digital currency market predictions

The institutional share of cryptocurrency ownership over the next 12 months had mean ownership to be 15% while respondent thought the # would be as high as ~25%. Similar to the fund manager survey, most respondents thought North America would be the primary geography of the crypto economy.

Overall Thoughts on the Survey

It was unclear what fund managers and capital allocators considered institutional investors. I don't consider family offices to be institutional investors, but it's unclear if survey respondents shared the same sentiment as myself. I would guess that they do not. I would love to see this same survey conducted exclusively among pensions, endowments, and asset management firms. My prediction would be that maybe a small percentage (x<5%) of those allocators have exposure to the space. This is the first survey conducted among institutional investors in the space so I am glad to see their thoughts. If they follow through on their sentiments then I expect a really bullish 12 months, but if they don't then I expect the same flat-lining that we've seen over the past 4 months. 

Thanks to Adam Winnick and Alex Daifotis for putting together the survey. If you want to learn more about Medici, check out their site: https://www.themedici.org/