Bitcoin draws family offices, high-net-worths but no PE

Bitcoin may be getting lots of attention but the sector is still too young for endowments or private equity investors.

Arianna Simpson, a venture partner at Crystal Towers Capital, said much of the interest in bitcoin comes from high-net-worth individuals and family offices. “Everyone is asking but some are not ready to pull the trigger,” Simpson said Nov. 28 at Consensus: Invest.

Patrick O’Shaughnessy, a principal and portfolio manager of O’Shaughnessy Asset Management, said endowments are three to six months away from investing in bitcoin. “When will the University of Chicago invest? Six months after Yale does,” he said to a packed room at the Marriott Marquis in Manhattan.

But Mike Novogratz, a former Fortress Investment Group trader, warned of wild crashes to come in bitcoin. “This is going to become the biggest bubble of our lifetimes by a long shot,” Novogratz said, according to the New York Post. “There will be wild crashes.” Novogratz has said that mainstream institutional investors are about six to eight months from adopting bitcoin, Reuters said.

Both Simpson and O’Shaughnessy appeared on the panel “Crypto Buy-Side: The Complete Opportunity,” while Novogratz’s comments came during the panel “First Movers: Why I First Bought.”

The warning came as bitcoin neared another milestone. On Tuesday, the price of a single Bitcoin crossed $10,000 on some exchanges, the New York Times said. That’s more than 10 times the price at the beginning of 2017, when the cryptocurrency was at $968 a coin. The huge price increase has produced a mania surrounding bitcoin. “It’s a clear bubble but it’s all people want to talk about,” one PE investor said.

The craze helped Consensus: Invest, which called itself the first digital-asset investor outlook event, to draw more than 600 people, a spokeswoman said. Attendees included institutional investors, hedge funds and family offices, she said.

Hu Liang, co-founder and CEO of Omniex, said he expected bitcoin to hit $50,000 by 2025. The former State Street Bank senior vice president said the cryptocurrency was still too small for institutional investors or bulge-bracket banks.

“As much as we want it to be an institutional asset class, it’s not there yet,” said Liang, who spoke on the panel “New Tools and Products: How to Gain Exposure.”

Earlier this week Omniex snagged $5 million in seed funding. The San Francisco company provides a trading platform for investment managers and active traders focused on cryptoassets.

Wicklow Capital led Omniex’s $5 million round while other investors included Sierra Ventures, Digital Currency Group, Clocktower Technology Ventures and ThirdStream Partners.

While venture capital has shown interest in the sector — VCs invested $1.4 billion in blockchain projects in Q3, according to CoinDesk — PE has not. Asked whether PE would invest in bitcoin, the first GP said: “Certainly, PE isn’t going to invest in the commodity.”

Instead, PE portfolio companies may adopt blockchain technology, while the firms themselves may invest in bitcoin service/tech providers or an exchange, the GP said.

Virtual currencies and blockchain are interesting but make sense from a venture perspective, a second GP said.

“Buying bitcoin is like going to Vegas with better odds but knowing the odds will eventually move against you,” the second PE executive said. “This is how manias work.”

Action Item: Contact Hu Liang at hliang@omniex.io

Photo of golden bitcoin coin and mound of gold courtesy of bodnarchuk/iStock Editorial/Getty Images