A new crypto index fund, the Digital Asset Index Fund, has been announced by creators Morgan Creek Digital Assets and Bitwise Asset Management on August 28 and it has already caused quite a stir because of its rigid eligibility criteria and the assets it has excluded. Morgan Creek Digital Assets, which is the crypto-oriented segment of Morgan Creek Capital Management, and Bitwise, which serves a crypto investment company that will manage funds; have come together to develop a new index fund meant specifically for institutional investor. However, the way many assets have been left out has baffled many within the industry.
The Morgan CIO Mark Yusko remarked that since every investor should ideally be thinking of some kind of investment in digital assets, they wanted to be of help by creating a platform specifically for them. Yusko has always been a vocal proponent of digital assets, even saying that he expects bitcoin price to go beyond $1 million over the next few decades. It is not like Digital Asset Index Fund is a pioneer in its field. Firms, including one of its developers, Bitwise, have earlier launched these services to help investors track market conditions so that they can be advised on diversification of their portfolios by exposure to several virtual assets. Even so, the creators of this new index fund claim its unique. Hunter Horsley, the CEO of Bitwise reportedly wrote to a news outlet saying this particular fund is specifically meant to attract institutional investors given Morgan Creek has a great deal of influence when it comes to asset management.
He added that the new fund brings together Bitwise’s superior rules in quantitative indexing and inputs from people like Mark Yusko and Anthony Pompliano, who have worked with institutional investors earlier as a part of being Morgan Creek employees. Pompliano commented that given the market pullback, it was the best time for the fund to be launched, since investors are now considering a foray into digital assets.
However, what concerns the industry insiders is the fact that it has extreme strict requirements for eligibility, more strict than other digital asset indices. Qualifying assets are not to have any more than 90% of their 30-day-long trading volumes focused on just one crypto exchange. Further, the advisory committee retains the discretion of suggesting that certain funds be excluded in case of having security weaknesses, or “undue exposure to 51% attacks”. The index has also missed stablecoins such as Tether (USDT) that have their values pegged to that of some other, stable asset. Most importantly, it has left out those assets that have 30% and above of their circulating supply held by the foundation behind the protocol or a business that operates it. This means most ICOs (initial coin offerings) will find themselves excluded. At the time of launch, the fund included bitcoin, bitcoin cash, Ethereum, EOS, litecoin, zcash, ethereum classic and a few others with their market cap-weighted positions. The custodian will be Kingdom Trust which will hold the funds in cold storage.
One of the key coins that have been left out is Ripple (XRP) which has a circulating valuation of almost $14 billion and is the third largest digital currency. Since over 50% of the supply is held by Ripple, the San Francisco based startup behind the coin, it has been excluded from the index. Ripple’s recent attempts to distance itself from its token has clearly not helped it to find an inclusion in the index fund. Horsley said that the decision to exclude XRP was motivated by the need to leave out public blockchains that involve regulatory risks and liquidity issues.
The fund has also left out IOTA, Cardano, Stellar and Tron, some of the top 10 most valuable virtual currencies that have not fulfilled the rigid eligibility criteria. Like all other index funds in crypto, Digital Asset Index Fund is only for accredited investors, with $50000 minimum initial investment for casual buyers.
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