Morgan Creek Launches Crypto Index, Snubs XRP

With the bitcoin price perched above $7,000 and moving higher, there’s no better time to debut a new investment product, and a couple of investment firms have pounced on the momentum. Morgan Creek Capital Management, which boasts $1.5 billion in assets under management, has teamed up with Bitwise Asset Management for a cryptocurrency-fueled index fund that’s designed to attract institutional capital.

The Digital Asset Index Fund is like the CRB of crypto only instead of commodities, it gives investors exposure to a “basket” of leading digital currencies that match the strategy.

Source: CNBC

Perhaps just as striking as the components in the index are those being left out — No. 3 cryptocurrency XRP as well as No. 6 coin Stellar. For its part, blockchain-based cross-border startup Ripple hold’s the lion’s share of XRP, which too closely resembles a centralized structure in Morgan Creek’s book. According to reports, Morgan Creek is steering clear of coins in which foundations own about one-third of supply or more.

There is at least one good reason why Morgan Creek could have included XRP — institutions want it. Brad Garlinghouse, who is at the helm of Ripple, recently described unprecedented demand for XRP among institutions, which is precisely who Morgan Creek is targeting with the new fund.  Also, Morgan Creek reportedly entered crypto by backing companies that are building the infrastructure on which security tokens exist, so why would they shy away from it now?

Institutional Demand

Nonetheless, the Digital Asset Index Fund should have no trouble attracting institutional capital. Mark Yusko, who is at the helm of Morgan Creek, told CNBC that the index fund was in response to institutional client demand. “We started to have incoming inquiries from hospitals, endowments, foundations, pension funds,” which is what led the firm to join forces with Bitwise for the new fund, said Yusko.

Until there are adequate custody solutions out there, institutions are likely to remain sidelined, though the spigot is beginning to open thanks to the likes of Coinbase and more recently Northern Trust that are securing digital assets. Meanwhile, any hint of a security token in the index fund could spook institutions, which are also awaiting greater regulatory clarity before jumping in. And that’s the rub with coins like XRP. The jury is still out on how the SEC will ultimately decide to classify the coin.

Morgan Creek’s index fund will have competition, including a similarly passive fund run by cryptocurrency exchange Coinbase that is comprised of bitcoin, Ethereum, Litecoin, Bitcoin Cash and Ethereum Classic. And then there’s the Bloomberg Galaxy Crypto index, which is similarly market cap weighted.

Featured image courtesy of Shutterstock

Gerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.