Key takeaways
- Private wealth management divisions of large, prestigious investment banks have been adding crypto products to their offerings, targeting their own ultra-wealthy clients.
- Most accredited investors – the majority of them baby boomers with limited knowledge of the crypto space – are currently cut off from such an informed access to an asset class that can be hard to understand.
- Yieldstreet offers access to Pantera’s Early Stage Token Fund, a third-party product built by alumni of both Goldman Sachs and Tiger Management, with many years of active experience in the crypto space.
Invest in crypto – they say. It’s easy – they say. But between renowned economists being skeptical about the asset class, news of billion-dollar frauds, and wild market swings – not to mention the advertising style of some crypto platforms, which point to “fortune” as a potential driver of returns – it may be tempting for wealthier, older, more sophisticated investors to forego allocating to the space altogether.
Indeed, current statistics1 point to a very small fraction of baby boomers being exposed to crypto assets in some capacity. Yet, and this can be a challenge for asset allocators and promoters of the asset class alike, boomers are the overwhelming majority of accredited investors that are able to access more sophisticated products. They also have the potential to deploy more assets since they own approximately 50% of the country’s wealth2.
Industry leaders that are widely followed by the boomers generation – such as Paul Tudor Jones, Steve Cohen, Dmitry Balyasny and Mike Novogratz – have been vocal supporters of crypto assets. But while Bitcoin has made it into the mainstream, most older investors lack the tools – and sometimes the time – to make sense of an asset class whose appeal is tied to future developments in the tech space such as, for instance, the metaverse(s).
Boomers want in
Goldman Sachs Private Wealth Management division’s decision to appoint a “Global Head of Digital Assets” in early 2021 can be seen as a signal that there is a healthy demand among the wealthiest investors. Other companies are following suit – Morgan Stanely, among others, is also offering its private clients to allocate some of their invested assets to selected crypto funds.
Goldman’s – as well as Morgan Stanley’s – structure and resources allow them to cover the space with plenty of relevant research and analysis – tools that the majority of investors cannot access. Indeed, their recent hiring sprees in the crypto assets research space can be seen as further evidence of increasing demand among their clients. But most accredited investors do not have access to such sophisticated tools, and this has somewhat dampened the potential of the asset class to attract larger amounts of capital.
What is an optimal crypto allocation?
Many mainstream analysts suggest an optimal allocation of between 1 and 4% of a portfolio, as crypto is an asset class with a high risk-return profile. The allocation is broadly seen as a portion of the “alts” section of an investor’s portfolio – which usually also includes private equity, private credit, real estate and/or hedge funds.
That may appear like a small number, but if the denominator is the wealth held by all accredited investors in the United States – not just the ultra-wealthy but every household with more than a million dollars in liquid wealth, for instance – the amount of investable assets in crypto can be estimated to be anything between $400 billion and $1.6 trillion.
And with only 6% of boomers currently active in the space, there may be an opportunity to double the entire crypto market capitalization if all accredited investors move forward with what analysts appear to suggest is an optimal deployment.
But before that happens, the access gap needs to be plugged by giving accredited investors better access to more sophisticated crypto investments. Yieldstreet’s choice is to offer its accredited members an opportunity to access a specialized third-party fund, and thus an indirect exposure to analysts that understand crypto market drivers and may potentially harness the asset class returns.
The Pantera Early Stage Token Fund I, which is available on Yieldstreet’s platform, will invest as a limited partner in a fund launched by Pantera Capital, a premier crypto and blockchain-focused asset manager. Pantera is one of the most experienced managers in the space, having launched the first cryptocurrency fund in the U.S. in 2013.
Learn more about the ways Yieldstreet can help diversify and grow your portfolio.
Sources:
1. Only 6% of baby boomers said they hold cryptocurrency, according to this investopedia survey.
2. For more information about the definition of “accredited investor” – please check the SEC website.
3. Ibidem
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Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
2 Represents an net annualized return, using an internal rate of return (IRR) methodology, with respect to the matured investments shown in your Portfolio experience, utilizing the effective dates and amounts of subscriptions and distributions to and from the investments, net of management fees and all other expenses charged to the investments.[read more]