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The growing interest in cryptocurrency within family offices

With large pools of capital to invest and a long-term horizon, family offices are increasingly interested in cryptocurrencies. According to a survey by Goldman Sachs; 15% of family offices globally and 25% in Americas having already invested, with almost half saying they might do so in the future.

After watching the cryptocurrencies craze for a decade, it seems even the most hardened sceptics are considering diving in and buying their first digital assets.

The survey of more than 150 family offices worldwide found that many wealthy investment firms are increasingly looking to cryptocurrencies as a way to hedge against higher inflation.

“Some family offices are considering cryptocurrencies as a way to position for higher inflation, prolonged low rates, and other macroeconomic developments following a year of unprecedented global and fiscal stimulus.”

Like hedge funds, private equity, and venture capital, cryptocurrencies are another asset class that diversifies risk and reward, and for some bitcoin now plays the same role as gold, except with a more volatile hedge against inflation.

This significant interest in cryptocurrencies within the family office world is further supported by a Campden Wealth survey. Of those surveyed 28% said they intend to increase their crypto portfolio this year, some by substantial margins.

Uncertainty in Cryptocurrency

Despite the recent surge in institutional adoption and growing interest in digital assets, some family offices are still unsure whether to invest in the cryptocurrency market. Across regions, Goldman Sachs report showed only 8% of Asia and EMEA respondents had existing investments in any form of cryptocurrencies.

Family offices tend to be cautious when it comes to asset management, avoiding market volatility, including cryptocurrencies, one of the most volatile investment themes to emerge in recent years.

Among respondents who are not currently involved in cryptocurrencies, the most frequently cited reason for caution is related to scepticism about cryptocurrencies as a good store of value. While other respondents said they were uncomfortable with the underlying infrastructure or were just not familiar with Cryptocurrency.  Additionally, there was a concern on the environmental impact of bitcoin mining as ESG implications continue to be a strong focus.

Crypto and concerns of Cybercriminal activity

Other issues with crypto include the potential for cybercriminal activity. The growing number of people involved in the rapidly growing global crypto economy, combined with its increasingly decentralised structure, opens up new opportunities for online criminals, and family offices top their list of targets as the public nature of the blockchain allows criminals to check for and target attacks, depending on the size of their wallets.

In July last year the FBI issued a warning about an increase in cybercriminal activity within crypto markets and the UK’s National Crime Agency (NCA) lists the most common forms of cybercrimes as: hacking, phishing, malicious software, and distributed denial of service; attacks against websites, often accompanied by threats of extortion.

As a minimum, family offices would be advised to undergo a formal risk assessment every year to assess fraud and risks and implement robust controls to mitigate them.

Looking ahead

The cryptocurrency space has experienced significant growth, and family offices’ focus on the space has grown with it.

For many there is still concern about the volatility and stability of the market, so most are yet to fully embrace digital assets, but there is growing evidence they soon will.

Goldman’s report said:

``Our conversations with family offices indicate they are interested in getting exposure not only to cryptocurrencies but also to innovation in the digital assets ecosystem.``

At a minimum, regardless of what family offices spend on research and advice, they could gather equally valuable insights by moving a little bit into cryptocurrency and see what happens…

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