Family offices are the discrete investment firms of billionaires, and a new report sheds light on their recent obsession with crypto.
The average family office now has 1% of its portfolio invested in cryptocurrency, according to research by Campden Wealth.
Considering the average family office handles $1 billion in family-owned wealth, that means each family office owns approximately $11 million in cryptocurrency.
In 2019, Campden Wealth estimated there were 7,300 single family offices in the world (anecdotal evidence suggests there are more today). If every one of those family offices owned $11 million in cryptocurrency they would own a combined total of $80.3 billion in crypto wealth.
According to CoinMarketCap, $1.9 trillion has been invested in cryptocurrency as of August this year. This means family offices own approximately 4.2% of the entire cryptocurrency market.
In North America alone, roughly one third of family offices have invested in cryptocurrency. Few billionaires are without a family office in the U.S., where the concept of a private office to manage your wealth was first invented by the Rockefeller family in the last century.
Increasingly sophisticated, these offices now have whole teams dedicated to managing billions in private wealth, though they rarely advertise their presence or report their results.
Family Offices Want More Crypto
“We started allocating a small amount to crypto on the venture side,” one CEO of a family office in Connecticut told The North America Family Office report. “But, the funds have done so well, going up seven times over the past year, that it’s become a reasonable part of the portfolio.”
This opinion is shared by many in the family office world. Of those surveyed by Campden Wealth, 28% said they are planning to increase their crypto investments next year, some by substantial margins.
“Initially, we were seeing an allocation of $2 million, $3 million. Tickets are now $5 million to $10 million and we’re seeing some large allocators who are now demanding tens of millions [of dollars worth] as a minimum starting rate,” says Anatoly Crachilov, CEO of Nickel Digital, a digital asset manager that deals mostly with family offices.
Several billionaires, including Alan Howard and Paul Tudor Jones, have been publically bullish on bitcoin. “They were the first to take a view that the pandemic ultimately will lead to inflation and they were the ones to adopt crypto as part of their portfolio allocation,” says Crachilov.
Nor is it just bitcoin family offices are buying. Though most bought into the world’s most popular blockchain currency initially, many are now diversifying, says Crachilov. “There are far more promising crypto assets I would bet on rather than bitcoin.”
Why Some Billionaires Are Ditching Crypto
But not all family office owners are so bullish about crypto. Globally, 4% of family offices said they would decrease their cryptocurrency exposure next year.
“We don’t view crypto as a currency because it’s way too volatile,” said a family member of a family office in Ohio. “How can it be a currency when it fluctuates as much as it does? We’re never going to buy into it.”
Volatility is a major concern even for crypto-owning family offices. When China declared all cryptocurrency transactions illegal in September, it sent prices spiraling, and many family offices reassessed their positions.
“Like with any volatile asset, hedging and diversification are key,” says Chi-man Kwan, group CEO and co-founder of Raffles Family Office in Singapore.
Worried about future crackdowns on crypto, UBS warned its clients to “stay clear” of cryptocurrency. Few major banks or wealth managers provide their own crypto investment products to clients. JPMorga
While globally, family offices averaged a 40% return from cryptocurrency investments, it’s been a mixed picture, says Rebecca Gooch, senior director of research at Campden Wealth. “We saw people that were real winners last year and we saw others that didn’t do nearly as well.
“People should be cautious when interpreting this. I don’t want everyone to think, ‘Oh I’m going to invest in crypto and of course I’m going to make loads of money from it.'”
But in spite of this, Gooch says family offices’ are just “starting to dip their toes into cryptocurrency investment.” If returns continue to make their billionaire beneficiaries wealthier, family offices could allocate far more money to cryptocurrency, and push their share beyond 4%.