Inside The Morgan Creek Digital Asset Index Fund for Crypto

Institutional investors now have a new opportunity to diversify their portfolios and get exposure to cryptocurrencies. Bitwise Asset Management announced The Digital Asset Index Fund launched in partnership with Morgan Creek Digital. Morgan Creek Digital is a subsidiary of Morgan Creek Capital Management that is responsible for the firm digital assets. The new instrument invests in a broad portfolio of some of the largest cryptocurrencies. Among its investments are Bitcoin, Ethereum, Bitcoin Cash, EOS, and Litecoin. However, it excludes pre-mined cryptocurrencies, such as Ripple.

What is Morgan Creek Digital Asset Index Fund?

An index fund is usually a fund whose portfolio tracks a market index. Morgan Creek Digital Asset Index Fund offers investors exposure to a broad selection of cryptocurrencies (the Morgan Creek Bitwise Digital Asset Index). According to the fund’s website, it invests in the 10 largest cryptocurrencies that cover 75% of the market. It allocates the largest share, 69.3% to the Bitcoin. Ethereum is next with 15.4%. Bitcoin Cash represents 5.5% of the index fund’s portfolio. Other cryptocurrencies with smaller shares are EOS, Litecoin, Dash, Zcash, Monero, Ethereum Classic, and Omise Go.

As stated earlier, the Morgan Creek Digital Asset Index Fund does not include Ripple, even though it’s the third-largest cryptocurrency in terms of capitalization. The fund excludes cryptocurrencies that have more than 30% of the tokens held by the issuer. In Ripple’s case, out of a total of 100 billion XRP tokens, Ripple holds around 60 billion. When the entity that issued tokens keeps a large amount for itself, it can interfere with cryptocurrency’s decentralization. It also excluded Stellar’s lumen for the same reason.

Morgan Creek’s CEO and CIO Mark Yusko explained that the decision to exclude Ripple and Stellar is due to risk management. “Institutions don’t care so much about big returns. They want to manage risk,” he said.

Other Criteria The Fund Follows

In addition, index funds must follow some specific rules and adhere to certain standards. The Morgan Creek Digital Asset Index Fund has a policy committee that monitors the fund and proposes and approves changes to its operation. The fund has a large methodology under which it selects the cryptocurrencies to invest in. In addition to the aforementioned avoidance of crypto that is hoarded by the issuing entity, other aspects taken into account are security, liquidity, bugs and vulnerabilities, and more.

For example, other cryptocurrencies (among the largest) that the fund avoids include Tether, because it is pegged to the dollar. In addition, Cardano and Iota are excluded because they cannot be kept in cold storage (offline).

Morgan Creek Digital Asset Index Fund Helps Pave Way to Crypto ETFs

The fund is open only to institutional investors, therefore it’s not available to retail investors. However, if you have your money in an endowment, foundation, pension fund or with another institutional investor, you can get exposure to the Morgan Creek Digital Asset Index Fund.

In addition to the Morgan Creek Digital Asset Index Fund, Bitwise has previously launched the HOLD 10 Index Fund that is invested in the 10 largest cryptocurrencies. Moreover, Bitwise aspires to launch a cryptocurrency-focused Exchange-Traded Fund. A crypto ETF would allow anyone to invest in a basket of cryptocurrencies through buying shares on a regular stock market. Currently, investors have access to instruments such as the Morgan Creek Digital Asset Index Fund, or the Bitcoin Tracker One, a Stockholm-listed Exchange-Traded Note that recently has become more accessible to US investors.

The fact that there is a demand for such securities could speed up the process of approving crypto ETFs. The Securities and Exchange Commission has so far rejected nine out of 10 proposals for Bitcoin ETFs. Until September 30, the SEC should issue its ruling regarding the tenth proposal, the SolidX-VanEck Bitcoin Trust.