What family offices really think of crypto

I often post about family office asset allocation. People love to hear how wealthy families are investing.

And every time I do, someone asks about crypto allocations.

It’s a difficult question to answer.

Survey data is often outdated and incomplete.  

So here’s my unscientific take based on discussions with family offices.

Family office crypto investors fall into four groups:

1. The Crypto Heirs

2. The Fiat Fossils

3. The Crypto-Curious

4. The Digital Guardians

More on that later, but first a look at the data and then the problem with the data. Why Bitcoin stands out and family office crypto concerns.

The Data

So what do the surveys say?

When looking at family office crypto allocations, Goldman Sachs reports a diverging picture. 26% of family offices surveyed reported investing in cryptocurrency in 2023, up from 16% in 2021. On the other hand, the number of family offices not interested in crypto had increased from 39% in 2021 to 62% in 2023. In other words, family offices are no longer sitting on the fence.

What about confidence in crypto as an asset class? Citi Bank’s Global Family Office Survey found that crypto assets finished bottom in net sentiment of family offices:

In a 2023 Knight Frank survey of high-net-worth individuals ranked crypto as the least safe asset class.

So what do the surveys say about crypto holdings?

Forbes claim that only 1% of the average family office portfolios are currently invested in cryptocurrencies, equating to around $11 million per office.  

The Problem with Surveys

The data on family offices and crypto typically comes from surveys.

Family office sentiment on crypto seems to follow market sentiment. And in a world of rapidly fluctuating crypto-sentiment, the surveys on family offices are usually out of date by the time they are published.

The family office view in 2023 will be very different from 2024 when Bitcoin is up 51% YTD.

The secretive nature of some family offices makes it challenging to obtain accurate data on their crypto investments.

Family offices may be underreporting their crypto holdings. There is some evidence that family offices in unstable jurisdictions are using cryptocurrencies as a secure store of wealth safe from unfriendly governments.

Family office surveys tend to be carried out by major private banks. This clearly limits survey respondents to their clients. Many private banks lack the requisite infrastructure to securely hold cryptocurrencies and family offices prefer to keep their crypto holdings private.

So it looks likely that surveys underestimate the overall crypto adoption among family offices.

What’s Really Happening

Here’s my unscientific take. Anecdotally, I see 4 types of family office crypto archetypes:

1. The Crypto Heirs

These are the outliers. The family offices that have significant crypto holdings. BTC, ETH, ADA, XRP, SOL, Doge…

Typically these are recently established family offices of tech founders who have had a major exit.

They bought crypto along the way, usually as early adopters. Often holding BTC in cold storage, they inherently understand the tech and the potential.

Their exit has brought them a ton of cash and they have made the smart decision to open a family office.

As a result, their crypto allocation is seriously outsized. If the family office is run by seasoned pros, they are usually recommending rebalancing to more stable assets.

There are also dedicated crypto family offices such as Winklevoss Capital launched by Tyler and Cameron Winklevoss in 2012. This family office invests in all things crypto. It’s been reported than in 2012, the Winklevoss twins owned 1% of all Bitcoin in circulation.

2. The Fiat Fossils

These family offices don’t like crypto. They don’t see the value. They view crypto as the epitome of the greater fool theory.

The Fiat Fossils fall into two camps: first-generation founders in traditional businesses or multi-generational families where wealth preservation is the priority.

These family offices have seen trends and fads come and go and see crypto as another get-rich-quick scheme lacking underlying utility.

These family offices prefer to stick to value investment and hard assets. Their goal is wealth preservation and crypto is seen as a surefire way to destroy wealth.   

3. The Crypto-Curious

These are usually 2^nd/3^rd gen family offices. The younger generation is more comfortable with tech and has seen the gains that can be made. They don’t want to miss the boat and are dipping their toes in. Their allocations are usually fairly low at 1-5%, but they have moved from skeptics to cautiously optimistic.

They see crypto as an emerging asset class and see value in diversification.

Their focus is on the more established coins of BTC and ETH, but often also follow the “picks and axes” strategy, investing in companies building the infrastructure around crypto.

4. The Digital Guardians

These are the family offices not showing up in the surveys.

They are typically families based in countries where there is risk of assets appropriation by unstable and unfriendly governments. Traditionally these family offices have physically moved to other jurisdictions, but an alternative way to protect wealth is to buy digital assets that the governments cannot see.

These are silent custodians of wealth in Russia, in Africa, in South America.

For them, crypto is a means to hedge geopolitical risk and the volatility is a price worth paying.   

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Bitcoin vs the Rest

For the majority of family offices who do invest in cryptocurrencies, Bitcoin stands apart.

The first-mover advantage, institutional adoption, and sheer market capitalization (>$1 trillion and half of the crypto market) mean family offices are more comfortable with Bitcoin than more obscure cryptocurrencies.

With its history and brand recognition, Bitcoin is seen as more legitimate and less speculative by almost all family offices I have spoken to.

Family Office Concerns

Like anything new and technical, working with trusted service provider partners is often the difference between spectacular failure and big wins.

With the nascent and rapidly evolving nature of the crypto industry, family offices seek assurance that their chosen service providers have robust security measures in place to protect their digital assets from hacks, fraud, and other risks. They prioritize service providers with a proven track record of reliability, transparency, and compliance with regulatory standards.

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Over to you... If you work for a single family office, let me know if you’re a crypto skeptic or committed holder.

I will share the results next week.

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What Next?

With some exceptions, family offices have not been early adopters of crypto. Traditionally, family offices have been primarily concerned about preserving wealth. This does not sit well with the wild volatility in crypto markets. But family offices are changing. The number of family offices has exploded in recent years and the focus is changing from wealth preservation to wealth generation.

The crypto market is still young. Bitcoin has only been around for 15 years. There will be more bumps along the road. But as regulatory clarity continues and institutional-grade infrastructure develops, it seems likely that family offices will increase their exposure. With $ trillions under management, family office investment could shift the crypto market.

But with some notable exceptions, family offices are not ahead of the curve on crypto. But if the Crypto Heirs, forge ahead, the Crypto-Curious and the Fiat Fossils will surely follow. Watch this space.

𝕏 highlights

Speaking of asset allocation, the latest insights from J P Morgan:

Early retirement is not all it’s cracked up to be:

📚 what to read

Time for a classic... How to Get Rich by the eccentric British publishing entrepreneur Felix Dennis is a must-read. Although published in 2006 before Dennis’ death, the advice stands the test of time. Accessible, practical and very funny.

📻 what to listen to

The Unhedged podcast from the Financial Times is - in their own words - a nerdy look at the major financial events and news of the week. Recent episodes include What’s next for Warren Buffett and Is Fed policy working?

📺 what to watch

Scott Galloway starts his Ted Talk with the question: Do we love our children?

He outlines a radical manifesto on how to improve the future of young people.

And finally…

Events: Next week is SFO Week in London put on by the SFO Alliance 

Unlike most family office conferences, it is only open to single family offices (with a minimum AUM of $400mn). The big advantage: no selling.

Family office conferences have a mixed reputation - while they are often advertised to founders and capital raisers as offering access to family office capital allocators, the reality is often disappointing, with many attendees finding them lacking in substance.

I’d love to hear about your experiences of family office conferences: What has been your most worthwhile family office event to attend? Or the least? There’s definitely a newsletter in it.

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Family Office Buzz has got off to a flying start. It will be back on Monday with more of the best content on family offices and beyond.

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Until next week, see you on 𝕏 or LinkedIn

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