Morgan Creek Capital Management of North Carolina, a privately-owned investment management company, has launched a cryptocurrency investment fund. This is done in partnership with Bitwise of San Francisco, which maintains indices of cryptocurrency prices.
The fund, the ‘Morgan Creek Digital Asset Index Fund’, is only available to accredited investors, that is, high net worth people and entities. The minimum investment is $50,000.
Notable exception to folder
In essence, the investment is on a folder of cryptocurrencies. Included are Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Zcash, Monero, Dash, Ethereum Classic, EOS, and Omisego. The first three make up more than 90 percent of the value of the index. The total value will be re-calculated monthly, with results published annually starting in early 2019.
Notably, the world’s third-most valuable cryptocurrency, XRP, is not included. This is because a large proportion of this currency is held by the Ripple management team, so it is not as decentralised as the other currencies are.
Anthony Pompliano, a partner of Morgan Creek Digital, said: “If there’s a central party that owns 30% or more of supply then we withhold those from the index because we think that introduces a lot of additional risk that may not be there if it was a more decentralized network.”
XRP is currently worth $13.7 billion, according to coinmarketcap.com.
As it stands, the Securities and Exchange Commission of the US has still not officially decided if XRP is a security or not – that is, if the tokens represent shares of Ripple. This is important because all companies that sell shares to people must register with that authority. Morgan Creek is licensed by the SEC, so it must comply with these things. Hunter Horsely, co-founder of Bitwise, said that the legal uncertainty is indeed one of the reasons for the exclusion.
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The Ripple team denies that XRP is a security, but it is currently facing a few class-action lawsuits on exactly this subject. It is a complicated matter – for example, Ripple last year locked up 55 billion XRP in a protected escrow account that management cannot touch in order to allay concerns of central manipulation. However, this very action is mentioned as a cause for complaint in one of the lawsuits, which accuses Ripple of doing this to affect the value of XRP.
Other major exclusions include IOTA and Cardano, because they do not fulfil the cryptocurrency storage safety standards required by Bitwise, and VeChain, because it only trades on one exchange.
Morgan Creek, founded in 2004, handles $1.5 billion of customer money, according to Forbes. It has additional offices in New York and Shanghai.
Bitwise, founded in 2017, boasts employees that have worked at places like Facebook, BlackRock, Goldman Sachs, JPMorgan, and the Korean military.
It offers on its website a number of cryptocurrency indices, which are folders made up of certain groups of cryptocurrencies, such as the top 10 and the top 20. It also has a private index fund, with a $25,000 minimum investment, and an offshore index fund with a $100,000 minimum.
It filed for a SEC approval to list a Bitcoin exchange-traded fund on the 25th July 2018. The fund is called the ‘Bitwise HOLD 10 Index Cryptocurrency Fund’, and Bitwise claims that it has outperformed Bitcoin since January 2017. The decision is still pending.
Last week, we reported on the latest batch of ETF applications being rejected by the SEC, ostensibly over concerns of market manipulation.