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Bitwise Cuts Crypto Fund Fees for Institutions, Family Offices

Crypto-fund pioneer Bitwise Asset Management is tweaking its cryptocurrency index fund, adding weekly liquidity and cutting fees for $1 million and up accounts.

Nothing divides a room quite like cryptocurrency. Nevertheless, Bitcoin, Ethereum, Litecoin and other cryptocurrencies are reportedly attracting institutional interest and asset managers are responding. Bitwise Asset Management, which made waves last year when it launched its cryptocurrency index fund, HOLD 10, is adding what it calls an “institutional pricing structure,” according to the company, which translates to a fee cut for larger investors. The move is meant to appeal to single and multifamily offices that are drawn to the product because of its low correlation with other asset classes, said Matt Hougan, global head of research for Bitwise. 

The passive index fund tracks a market-cap-weighted index of the top 10 cryptocurrencies and will now have weekly liquidity, a feature added after investors indicated an interest in more regular rebalancing. Accounts with more than $1 million in net deposits saw their management fee reduced to 2 percent, while the $25,000 investment minimum is still managed for 2.5 percent. As a safeguard against churning, there’s an early withdrawal fee of 3 percent for investors who redeem within a year that’s rebated to fund shareholders.

Lower fees or not, some registered investment advisors serving high-net-worth individuals and families are steering their clients far away from cryptos. “We do not see the cryptocurrency market in its current form as an institutionally investable asset,” said Jack Zhang, director of risk management at Halite Partners, the high-net-worth-focused RIA that recently broke away from Morgan Stanley, and a member of its investment committee. “We are looking at an asset class that has no intrinsic value with a price derived solely by sentiment. Within this asset class, most of the coins will likely be long-term zeroes.” Halite cautioned that cryptos have garnered notice nearly a decade after their launch because of their “sensational trailing returns” and that the sector is a minefield “filled with fads and frauds.” 

For those bullish on cryptocurrency, however, HOLD 10’s approach to transparency, pricing and liquidity is a good step in eventually winning over assets, said Tyrone Ross Jr., managing partner at NobleBridge Wealth Management. “It’s all about the community behind the coin,” he said. “This is a long-term thing.”  His clients have shown interest in cryptocurrencies, he said, and he sees the asset class as “a great diversifier” if it’s properly and regularly rebalanced. “Advisors are doing an injustice if they’re not talking about it,” he added.

Hougan said he has increasingly heard “exploratory” inquiries from larger institutions like foundations, pensions and endowments as they consider investing in cryptos. Those turned off by recent volatility and a January crash in bitcoin need to keep their eye on the long term, he said.

Though past performance is no guarantee of future returns, Bitwise studied bitcoin’s addition to a model portfolio and found that during bitcoin’s frenzied rise from Jan. 1, 2014 to March 31, 2018, allocating five percent to the coin—taken proportionally from each side of a traditional 60 percent equity and 40 percent bond portfolio and “diligently” rebalanced, more than doubled the total portfolio returns and nearly doubled the portfolio’s Sharpe ratio, a measure of risk-adjusted return. 

Critics would be quick to note that the study only looks at a time period correlating with a bull market in equities, as well as a frenzied 992 percent rise in the value of bitcoin, from $815.94 to $8,911.35. Still, Bitwise is confident in the future of the investment. “With any new and emerging asset class…you’ll see high volatility,” Hougan said, “but you’ll also see high returns.” 

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