Bitwise Asset Management has launched what it says is the first cryptocurrency index fund and is building out research and analysis, passive methodologies, and other infrastructure to attract institutional investors.
Matt Hougan, former CEO of ETF.com and now global head of research at Bitwise Asset Management, founded last year, says he wants to offer institutional investors interested in cryptocurrencies an alternative to high-fee hedge funds that now dominate the fledgling cryptocurrency fund sector. Bitwise offers the index strategy in a partnership vehicle, as the Securities and Exchange Commission has not yet approved any initial coin offerings or crypto exchange-traded funds and has not said whether it will ultimately approve any.
Hougan, who was involved in the sale of ETF.com's three divisions to three different buyers, including software and financial data firms FactSet and Informa in 2015, says the business of cryptocurrency is still in the early stages and reminds him of exchange-traded funds 15 years ago, when he first joined the then-nascent industry.
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Over the years, he witnessed how institutions were cautious about investing in ETFs before ETF.com and others provided institutional-quality research, fund classifications and data on volume, liquidity and other factors that influenced how ETFs performed over time. Hougan, who was managing director of global finance for Informa before joining Bitwise this month, is hoping to provide the same kind of infrastructure for cryptocurrency funds, which potentially could offer high returns with low correlation to other asset classes.
"Right now, we're spending a lot of time educating potential investors about crypto and blockchain," says Hougan, who is based in the San Francisco Bay area. "Ultimately, the quality of the data contributes to a healthy ecosystem."
Bitwise's first product, called the Bitwise HOLD 10 Private Index Fund, offers exposure to ten currencies and charges a flat 2.5 percent management fee. The fund is rebalanced monthly and holds the top ten currencies weighted by market capitalization.
Hougan hopes to expand into other crypto index products based on factors such as market capitalization and other technology trends as the asset class develops. Bitwise also aims to lower fees as the cost of services, such as custody, decline over time.
Bitwise has 500 limited partners in its index fund, most of them family offices and registered investment advisers that have more flexibility in investing in emerging asset classes. Hougan is also hoping to convert the fund to an ETF once the SEC moves on cryptocurrencies.
Bitwise is not the only firm building index crypto funds. Coinbase and Digital Asset have both said they will launch some form of crypto index funds.