Why Do Family Offices Invest in Bitcoin?
A family office is a privately held company that invests and manages the wealth of a single family, often wealth that has been accumulated over generations, with the goal of growing and transferring that wealth across subsequent generations.
Family offices prioritize the preservation of their wealth over time, maintaining a balanced and profitable portfolio, and easily transferring wealth and assets between generations. Because of decreased regulatory and shareholder obligations compared to institutional funds, family offices can also accommodate higher risk growth strategies and seek out innovative investments.
Bitcoin is able to meet the needs of family offices because it is a strong long-term store of value, it has a low correlation to other asset classes, and it offers high growth potential that is appealing to family offices. When established with secure custodial solutions and legal documentation, a Bitcoin investment can be easily transferred between generations, another beneficial characteristic for family offices looking to avoid unnecessary legal or financial processes during the transfer of wealth.
Bitcoin Is a Long-Term Store of Value
As inflationary concerns indicated by the rising yield curve grow, and the long-term stability of fiat currencies becomes increasingly uncertain, family offices no longer prefer holding cash. The cost of transacting and holding cash is negligible in the short term, but a family office that values longevity and generational wealth will not accept the long-term cost of holding cash. Therefore, holding Bitcoin has become an increasingly popular investment vehicle for families concerned with preserving the value of their wealth overtime.
Bitcoin’s Correlation to Other Assets
For a family office, the very low or negative correlation between Bitcoin and traditional asset classes such as stocks, commodities, real estate, or bonds is appealing when it comes to building a balanced portfolio. As interest rates remain low, creating a portfolio with a suitable risk profile that also achieves satisfactory returns can be difficult. Thus, family offices look to Bitcoin to balance their portfolio and offset the lower returns of other assets in their portfolio.
The Investment Goals of Family Offices
Family offices are uniquely positioned to invest in Bitcoin because of the liquidity available to them and their freedom to partake in cross-sector investments. Family offices have more investment flexibility in their regulatory holding periods than traditional investment firms. They are also able to take on more risk then institutional funds, and can invest in new technology and an overarching growth strategy that they can autonomously determine.
Seamless Transfer of Wealth
Arguably the most important function of a family office is ensuring that wealth maintained and grown over time can be accessed by subsequent generations. Because bitcoin is a digital asset, there are increased risks associated with losing access to bitcoin. Family offices that choose to self-custody their bitcoin should leave detailed instructions in wills on how to access hardware wallets or hot wallets on which bitcoin investments are stored. Bitcoin invested in a family office utilizing a custodian can be transferred to a new owner through a will, trust, power of attorney, or account beneficiary as established with the custodian of the bitcoin. These methods avoid the complicated legal process of transferring wealth of physical assets.
- Investing in Bitcoin provides family offices a long-term store of value for their generational wealth.
- Family offices are not subject to the same regulatory restrictions that institutional funds must comply with.
- When bitcoin is transferred between generations, it does not have to follow the same legal route as physical assets.