Bitwise Says Institutions Are Overlooking Crypto’s Biggest Advantage

Institutional investors have long been conditioned to chase the illiquidity premium, believing that locking up capital in private equity, credit, or venture will yield superior returns.

However, according to Jeff Park, Active Portfolio Manager at Bitwise Asset Management and CIO at ProCap BTC, this framework does not translate well into crypto.

Bitwise Says Institutions Need to Rethink Their Crypto Playbook

Instead, Park advocates for liquid alpha, saying that this makes digital assets unique and institutions are missing out.

Park made these remarks in a post, drawing on the legacy of David Swensen, the legendary Yale Endowment CIO. Swensen is renowned for popularizing the endowment model of allocating up to 70% of capital to alternatives.

Swensen’s philosophy cemented the belief that patient, illiquid investments carry a return premium that justifies long lockups. However, Park contends that crypto operates by a different set of rules.

“In crypto, I believe the term structure is in backwardation, where investors are overcompensated to invest at the near end of the curve versus the long end. You are paid handsomely to take liquid risks where the scorecard is generated every day without having to wait ten years,” Park explained.

He pointed to the performance of trading strategies during volatile periods. For instance, while Bitcoin fell 7% in early April 2024, Park noted that market-making strategies annualized at 70%, with arbitrage delivering 40% returns.

In his view, this kind of opportunity challenges the very foundation of illiquidity-based portfolio theory.

Institutions, however, continue to allocate heavily to crypto venture capital (VC), echoing patterns from their traditional playbooks.

For the Bitwise executive, this overlooks the scalability and efficiency of liquid crypto markets, which traded over $2.5 trillion in spot assets, alongside $2.5 trillion in Bitcoin futures in May.

“The liquid crypto market is undoubtedly more scalable for institutions versus the venture market, which by definition must be capacity constrained for alpha generation,” he argued.

Park went as far as to frame crypto’s volatility as an advantage, not a risk. He said that if the S&P 500 carried realized volatility near 70%, private equity return expectations would look entirely different.

In crypto, this volatility unlocks short-term opportunities that large institutions could harness without waiting a decade.

Bitwise itself has positioned multi-strategy products around this thesis, seeking to capture liquid alpha across arbitrage, market-making, and trend-following.

Park suggested that Swensen, who valued unconventional approaches, might have appreciated such strategies if applied to crypto.

“Establishing and maintaining an unconventional investment profile requires accepting uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom…Sounds like crypto to me,” Park stated, quoting Swensen.

Ultimately, Park believes the next iconoclast in institutional investing will be the one who recognizes that crypto’s advantage lies not in mimicking traditional venture or private equity models. Rather, accepts and adopts its liquidity and volatility.