Institutional investors have long been conditioned to chase unliquidated premiums, believing that accumulating capital in private equity, credit or venture will result in excellent returns.
However, according to Jeff Park, active portfolio manager for Bitwise Asset Management and Procap BTC CIOs, the framework doesn’t translate well into crypto.
Bitwise says institutions need to rethink their Crypto Playbook
Instead, Park supports Liquid Alpha, saying it makes digital assets unique and the institutions missed.
Park made these comments in a post, tapping into the legacy of legendary Yale donation CIO David Swensen. Swensen is well known for popularizing the donation model in which up to 70% of capital is allocated to alternatives.
Swensen’s philosophy solidified the belief that patient, illiquid investment, carries a return premium that justifies long lockups. However, Park claims that ciphers work with different sets of rules.
“In cryptography, I think the term “structure” is a retreat. Investors are overcompensated to invest near the curve between the long edges. You are paid brilliantly to take the risk of liquids that your scorecard produces without waiting 10 years every day,” Park explained.
He pointed to the performance of trading strategies during periods of uncertainty. For example, Bitcoin fell 7% in early April 2024, but Park noted that its market production strategy was 70% per year, while Arbitrage provided a 40% return.
In his view, this kind of opportunity challenges the foundations of illiquidity-based portfolio theory.
However, institutions continue to be heavily allocated to Crypto Venture Capital (VC), which reflects patterns from traditional playbooks.
For BitWise executives, this overlooks the scalability and efficiency of the liquid crypto market, which traded spot assets over $2.5 trillion in May with more than $2.5 trillion in spot assets.
“The liquid crypto market is undoubtedly more scalable for the institutional and venture markets, and by definition, the Alpha generation must be limited in capacity,” he argued.
The park went to frame crypto volatility as an advantage, not risk. He said that expectations for private equity returns look quite different if the S&P 500 carries volatility realized at nearly 70%.
In cryptography, this volatility unlocks short-term opportunities that large institutions can use without waiting ten years.
Bitwise itself is trying to place multi-strategic products around this paper and capture liquid alpha to arbitration, market production, and trend-following.
Park suggested that Swensen, who values an unconventional approach, might have evaluated such a strategy if applied to cryptography.
“To establish and maintain an unconventional investment profile, you need to embrace an unpleasantly singular portfolio, which often appears completely rude to the eyes of traditional wisdom…sounds like a code to me,” Park said, citing Swensen.
Ultimately, Park believes that the next iconoclast in Institutional Investing is someone who recognizes that Crypto’s benefits do not mimic traditional venture or private equity models. Rather, they embrace and adopt fluidity and volatility.
Post says the agency has overlooked the biggest advantage of crypto, according to Bitwise.
