Categories: Ripple

A $1.5 billion investment firm is taking a fresh approach to launching a crypto index, and it’s hoping the move will win over pensions and endowments

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Thomson Reuters
Ripple's XRP will not be included in the index because it is too centralized, according to Morgan Creek's Anthony Pompliano.
  • A $1.5 billion money manager is teaming up with a California crypto startup on a new kind of index for the crypto world.
  • Morgan Creek's new fund is aimed at institutional investors, specifically family offices and endowments.
  • Unlike other funds, it plans to exclude cryptos based on their level of centralization.

A $1.5 billion money manager is looking to unleash the crypto markets onto pension funds and endowments with a new kind of index aimed at institutional investors.

Morgan Creek, the investment firm led by Mark Yusko, on Tuesday announced an index called the Morgan Creek Bitwise Digital Asset Index in partnership with the California startup Bitwise Asset Management.

Crypto indexes have been popping up at a fast clip this year as crypto firms eye big institutional pockets. Elsewhere in the market, Bloomberg partnered with Mike Novogratz's Galaxy Digital on an index. Coinbase also announced the launch of a fund to allow investors to put money into a basket or index of four of the largest cryptocurrencies.

But Morgan Creek is betting that the setup of its fund will be more palatable for large investors, specifically pensions, family offices, and endowments. The fund, similarly to others on the market, is meant to give investors exposure to a basket of cryptocurrencies. But it will exclude certain cryptos that do not meet a certain level of decentralization, according to Anthony Pompliano, the head of Morgan Creek Digital, the fund's crypto unit.

Tokens across the market for digital assets are structured differently. Some, like bitcoin, are released at a set amount via a process known as mining, whereas others are premined and then released or managed by a centralized entity or foundation.

Morgan Creek says it will exclude cryptocurrencies with foundations holding 30% or more of the supply of a coin. Pompliano said offering an index of less centralized cryptos was more appealing to institutions because it opened investors up to less regulatory and technical risk.

"A large centralized repository increases threat vectors, governance issues, regulatory issues," Pompliano said. "By removing those type of assets from the index, you drastically reduce the risk that investors are exposed to."

As for regulatory risks, the degree to which a crypto is centralized could have implications on whether federal regulators would deem it a security. Ripple, the firm behind the crypto XRP, has faced lawsuits for issuing an unregistered security. Brad Garlinghouse, the CEO of Ripple, has said the crypto is not a security.

The Morgan Creek index will not include XRP, as the firm estimates Ripple's foundation fund controls about 55% of the coin's supply.

The fund will offer investors access to the 10 largest digital assets that meet the required threshold, including bitcoin and ether. Investors will be charged a 2% management fee. The type of institutions that have expressed interest in the product, according to Pompliano, include endowments, foundations, sovereign wealth funds, and pensions.

Morgan Creek acquired Full Tilt, a North Carolina-based firm focusing on investments in the digital asset space, in March.

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