Morgan Creek launches crypto index

Ripple’s
XRP will not be included in the index because it is too
centralized, according to Morgan Creek’s Anthony
Pompliano.
Thomson
Reuters

• 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 will 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, announced on
Tuesday an index called the Morgan Creek Bitwise Digital Asset
Index in partnership with California startup Bitwise Asset
Management.  

Crypto indexes have been popping up at a fast clip since the
beginning of 2018 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 the set up of its fund will be
more palatable for large investors, specifically pensions, family
offices and endowments. The fund, similarly to others on the
market, will 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 pre-mined and then
released or managed by a centralized entity or
foundation. 

Morgan Creek will exclude cryptocurrencies with foundations
holding 30% of the supply of a coin. Pompliano said maintaining
an index of less centralized cryptos is more appealing to
cryptocurrencies because it opens 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 total supply of the
coin. 

The fund will offer investors access to the ten 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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