Morgan Creek Launches Crypto Index Fund

The institutional advisor has partnered with the creator of the first crypto index fund to give pensions and endowments an entry point into digital currencies.

Illustration by II

Illustration by II

Morgan Creek Digital, a subsidiary of institutional advisor Morgan Creek Capital Management, wants to become the S&P 500 of cryptocurrencies.

To do that, it has launched the Digital Asset Index Fund through a partnership with Bitwise Asset Management, a provider of cryptocurrency research and analytics and creator of the first crypto index fund. Although Mark Yusko, chief investment officer at Morgan Creek, concedes that becoming the S&P 500 of crypto is a lofty goal, he said the firm is piggybacking on the transformational momentum of crypto and blockchain technologies.

According to Yusko, blockchain will grow to become as important as the internet and mobile technologies have been since the 1990s.

“We want to be one of the trusted advisors as institutions make the trek into the digital age,” he said.

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Morgan Creek is betting that if it can simplify cryptocurrency investing and take the fear out of the process, the firm will help institutions get into the sector now — rather than years after much of the opportunity has passed.

Right now, it’s still early days for cryptocurrencies and blockchain as an asset class. Prosaic services that institutional investors require including custody, safekeeping, audit, and accounting are not yet standard fare.

Bitwise, which will manage the new fund, has created rules-based indices of currencies. The new fund holds a market-cap-weighted basket of the top 10 largest digital assets, a mix that will be reconstituted monthly. Assets that the fund holds will have to meet eligibility requirements including custody qualifications and trade concentration limits, among other factors to be included in the fund. The cryptocurrencies will be kept in 100 percent cold storage — which Morgan Creek and Bitwise claim to be the best practice for security.

“Institutions use index funds as core holdings so they can get safe exposure to an asset class,” Yusko said. “Our campaign is to get off zero. Most institutions — 99.9 percent of them — have zero exposure to crypto assets. Zero is the wrong number.”

Morgan Creek first got involved in blockchain technologies in 2013 with Dan Morehead’s Pantera Capital. After spending time with Morehead, whose hedge fund focuses exclusively on blockchain, Yusko made a few investments.

More recently. Morgan Creek acquired Full Tilt Capital, which is focusing on cryptocurrencies and blockchain.

Over five years of research on the new technologies, Yusko has come to the conclusion that blockchain will be as influential as the internet. This is because blockchain allows the transfer of something valuable — money, stock certificates —without third parties like banks and brokers, each of whom would take a bite out of the transaction. He said he coined the term “Trustnet” to describe it.

“Blockchain allows you to create a single point of truth so people who normally don’t trust each other can transact,” Yusko said. He described hitchhiking years ago and the obvious danger involved in getting into a stranger’s car. Now, he said, people get into the cars of strangers all the time through ride share services like Uber and Lyft. Uber created the trust. Yusko believes the same will be true of blockchain.