Investors should take a punt on ‘controversial’ crypto assets, Cambridge Associates

The collapse in the price of cryptoassets makes it a more interesting time to consider gaining exposure to this space, including investments in the underlying blockchain technology, according to investment firm Cambridge Associates.

It says for institutional investors that already have exposure to cryptoassets it is on average approximately 20-30 basis points of assets under management. The company’s research states that any allocation to cryptoassets should be kept to a maximum of 1% of a portfolio. Exceeding this allocation would not be prudent, even for those comfortable with assuming the high risks involved.

Marcos Veremis, Managing Director at Cambridge Associates, says: “Investing in cryptoassets remains controversial, and we are extremely selective and cautious in this space. However, the attitude of many institutional investors in this space is not dissimilar to that of venture capital investors in early internet companies in the 1990s. Early stage venture investing implies that the vast majority of companies and projects in this space could, and probably will fail.”

“Institutions know they are investing on the basis that they may see many of their portfolio companies produce no returns, but with outsized returns from one or two of them. Though investments entail a high degree of risk, some may upend the digital world. Venture-style due diligence and technical expertise may provide a better understanding of cryptoasset investments and their long-term return potential.”

Although the space is nascent and at the infrastructure stage, the presence of cryptoassets implies that a lot or some of the potential value could be captured at the protocol level. It is too early to discuss the applications built on top of value protocols at this time. “We have observed the influx of real talent into this space, that’s what makes it interesting to us. Talented individuals tend to deliver in the long-term,” Veremis concludes.