Wealth Preservation, Growth & Philanthropy from a Single Asset
Typically, the primary responsibility of a family office is the family’s financial well-being. Acquired wealth needs to be preserved for future generations, at the same time as being strategically invested for optimal growth. Quite often the family also wants a portion distributed for the benefit of philanthropic causes. To meet these two objectives (apart from the many other financial and administrative responsibilities), the family office has to allocate a significant proportion of resources towards impact research and portfolio management.
Over the past couple of years, we have seen family offices - most particularly single family offices (SFOs) - showing a growing interest in Bitcoin as a means to achieve portfolio goals. Our own experience is confirmed by Angelo Robles, CEO and Founder of The Family Association, when in an interview he stated, “We’re seeing a growing number of single-family offices – especially those with greater assets – invest in less traditional assets such as bitcoin.”
The welcome bonus that ends up surprising many of these organisations is that the support their investment lends the Bitcoin movement inadvertently serves philanthropic goals as a well.
The Bitcoin movement serves a combination of unique qualities and these translate into both material and philanthropic benefits for investors and investment groups, including the family office.
Much of bitcoin’s growth in adoption to date can be attributed to a dwindling trust in the central banks’ ability to preserve the buying power and value of our fiat currencies. Commenting on prevailing low interest rates globally, Jana Randow and Simon Kennedy describe the situation:
“Crazy as it sounds, several of Europe’s central banks cut interest rates below zero in 2014, and then Japan followed. By mid-2016, some 500 million people in a quarter of the world's economies were living with rates in the red.”
While the short and medium-term volatility of cryptocurrency has undergone stomach churning periods, those with a long-term mandate have found cryptocurrency a suitable investment instrument for their investment period. Andreesen Horowitz’ a16z fund, specialising in cryptocurrency assets and blockchain projects, is one example. This fund’s structure can be described as 'patient capital':
“The firm has been investing in crypto assets for more than five years. It says it hasn’t sold any of those investments and doesn’t plan to anytime soon. In other words, a16z will hold investments for longer than the normal venture cycle of ten years.”
“There are a number of overlapping rationales for these single-family offices to invest in bitcoins”, explains Robles. “For example, there’s a fixed supply of bitcoins, more businesses are accepting the currency, and more and more investors from hedge funds to institutional players are looking at bitcoins as a way to diversify a portfolio. Also, bitcoin benefits by being first on the scene and establishing a beachhead of sorts.”
Even though many still consider cryptocurrency investment too daring, others use products like Bitcoin futures to hedge the risk. As a growing number of regulated cryptocurrency platforms, products and services are entering the market (ICE’s Bakkt exchange, Fidelity’s institutional crypto products and services, Coinbase’s SEC-regulated institutional crypto products, etc.) the ecosystem is becoming more attractive even to relatively conservative investors.
"Brazilians have been suffering from corruption and bad monetary policy. Cryptocurrency offers a way for them to peacefully opt out of a corrupt system." CoinText CTO, Vin Armani
While the first drive of cryptocurrency adoption occurred in the so-called ‘first world’, in recent years, none has adopted its use with quite as much urgency as those in developing countries. Irrespective of having the ability to set up a website and deliver a product in digital form, factors like international sanctions, lack of infrastructure, and fee structures restrict many from sending and receiving value in exchange for goods and services. Of the near 8 billion of the people on this planet, more than a third (around 2 billion) are effectively in the same financial category as terrorists - they cannot trade directly or access banking services. They are cut off.
In an article titled ‘Financial Inclusion and Efficient Remittance System Can Save Africa From Mediocrity’, Iyke Aru describes the more significant effect that financial exclusion has on social and economic development:
“Most of the problems faced by the 1.2 bln people of Africa are directly or indirectly connected with financial inclusion and remittances.
Easy access to funds and efficiency of transactions have proven to be major determinants of wealth creation and growth in today’s world. As a matter of fact, in some cases, it stands out as the difference between development and primitive existence. This is evident in the dynamism and rate of change in communities where improved fintech products have been launched.”
“Financial services have been proven to help grow wealth. Unfortunately, for much of the world access is uneven and expensive. In many places, formal banking is seen as something exclusively for the wealthy. Banks require high minimums and fees for opening and maintaining accounts. Due to the cost to serve and inability to prove identity, many financial institutions don’t open branches in remote or low-income areas, requiring people to travel for hours to transfer money.”
In 1999, Economist and Nobel Laureate Milton Friedman made the following prediction:
“The one thing that’s still missing but will soon be developed is e-Cash - a method whereby on the Internet you can transfer funds from A to B, without A knowing B or B knowing A.”
A mere ten years later, Bitcoin was born, supplementing the internet with a trustless value transfer protocol. For those in countries riddled with corruption and economic instability, cryptocurrency means accessible and affordable banking, emancipation from central control, and inclusion in the global free trade system.
Not every family office has the resources to dedicate to mastering cryptocurrency investment, an asset class which probably only makes up a smaller part of their portfolio. This is where Bitstocks steps in.
One of the key elements that makes Bitstocks different is that each of the individuals who work in the company are personally dedicated to creating an investment brand that doubles up as social investment. While we are based in the UK, our investment advisory service is available to a businesses located in a number of jurisdictions. Feel free to contact us for more info!