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Crypto Asset Management for family offices | Image by Marcel Witte
Crypto Asset Management for family offices | Image by Marcel Witte
High-net-worth families are transitioning beyond traditional equity and bond allocations, exploring private wealth digital assets, ultra-high-net-worth (UHNW) crypto strategies, and innovative financial frameworks. Across the industry, and among companies specializing in crypto asset management, a growing trend is emerging toward adopting these new investment approaches to meet the complex needs of ultra-wealthy and affluent families.
According to a 2025 BNY Wealth survey, 74% of investment professionals have either invested in cryptocurrencies or are exploring the possibility, a 21% rise in 12 months. Driven by favorable regulatory developments, including support from the current U.S. administration, the outlook for digital assets seems bright. If you’re constructing a modern family portfolio, understanding family office crypto management is no longer optional; it’s essential.
Understanding crypto management for family offices
Family office crypto management refers to institutional-grade practices for investing, securing, and optimizing cryptocurrency and tokenized assets within ultra-high-net-worth (UHNW) portfolios. Unlike retail investors, family offices require robust frameworks - rigorous governance, compliance-ready custody, tailored asset allocation modeling, and integration with legacy alternatives.
Both single-family offices and multi-family offices offer a wide range of services to their clients, often supported by a dedicated team. Single-family offices serve one ultra-affluent family, while multi-family offices serve many clients, providing both financial and lifestyle service offerings. These services can include investment management, estate planning, philanthropic advising, and household management, tailored to meet the diverse needs of their clients.
1. Diversification & uncorrelation: Digital assets often have low correlation to equities and bonds, adding a new layer of risk-return potential. Bitcoin is structurally independent from most traditional asset classes. Over the past five years, its average correlation with equities has hovered between 0.2 and 0.5: far lower than correlations observed between equities, bonds, and real assets. This uncorrelated behavior provides allocators with a new return driver. One that is not tied to earnings seasons, monetary policy, or fiscal stimulus.
Correlation matrix
Period of analysis 31-Dec-2019 - 31-Mar-2025. Based on monthly returns. Source: Google Finance data and S&P.
2. Performance: Bitcoin’s appeal to institutions extends beyond price appreciation. It is about what Bitcoin offers from a portfolio construction perspective: convex upside, low correlation, and independence from traditional market dynamics. Over the past 14 years, Bitcoin has outperformed every major asset class in 11 of those years. Often by a wide margin. From 2011 to 2024, its cumulative returns dwarfed those of equities, bonds, and commodities. Liquidity and the involvement of liquidity providers can significantly impact returns and trading strategies in the crypto market.
Bitcoin performance vs traditional asset classes
Source: Bitwise Asset Management, Crypto Market Review Q1.25, with data from Bloomberg. Data from December 31, 2010 to March 31, 2025.Asset classes are represented by the following. Bitcoin: BTC spot price. Gold: Gold spot price. U.S. REITs: MSCI U.S. REIT Gross Total Return Index. U.S. Bonds: Bloomberg U.S. Aggregate Bond Index. U.S. Equities: S&P 500 Total Return Index. Commodities: Deutsche Bank DBIQ Optimum Yield Diversified Commodity Index Total Return. DM Equities: MSCI EAFE Gross Total Return USD Index. EM Equities: MSCI Emerging Markets Gross Total Return USD Index. All calculations are total return, including dividends for the stated period.
3. Yield opportunities: Stablecoin yields, staking, and structured products provide yield enhancements not typically found in traditional bonds. Robust accounting practices are essential for tracking and managing yield-generating activities effectively.
Core elements of family office crypto management
Effective crypto asset management for family offices revolves around several core elements that distinguish sophisticated management from speculative investment.
- Investment rationale: Clear articulation of why crypto assets are being included in the portfolio.
- Allocation limits: Defined percentage ranges for crypto within the overall portfolio to ensure prudent risk management.
- Risk management: Guidelines for managing volatility and potential drawdowns, including stop-losses, exposure caps, and rebalancing procedures.
- Compliance and regulatory alignment: Detailed procedures ensuring adherence to local and international regulations, AML/KYC requirements, and tax reporting standards.
- Cold Storage: Keeping private keys offline to prevent cyber threats.
- Insured Solutions: Protection against theft, loss, or hacking through reputable custodians such as XBTO, Coinbase Prime, Fidelity Digital Assets, or BitGo.
- Multi-Signature Wallets: Enhanced security protocols ensuring multiple approvals for transaction execution.
- Real-time performance dashboards: Monitoring portfolio performance, asset allocation, and risk exposure in real-time.
- Integrated reporting: Seamless integration with existing portfolio management systems to streamline reporting and audit processes.
- Third-party audits: Regular audits to maintain trust, ensure accuracy, and meet compliance standards.
- Jurisdictional Structuring: Leveraging favorable jurisdictions with clear crypto taxation frameworks.
- Transaction Tracking: Accurate recording and reporting of on-chain activities such as staking rewards, token swaps, and yield farming for tax compliance.
- Tax-Loss Harvesting: Strategies to offset gains and minimize tax liabilities through active management.
- Family Education Sessions: Regular training sessions to understand digital asset markets, technology, and risks.
- Succession Planning: Clearly defined guidelines on crypto asset inheritance, key management, and custodial transfer processes.
How to get exposure
Family offices can gain exposure to digital assets through various strategies, each with distinct advantages. They can work with specialized companies, financial institutions, or a private bank to access a range of financial services and other services related to digital assets. Choosing the right method depends on factors like your investment goals, risk appetite, internal capabilities, and the desired level of active management.
Direct investments
Family offices can directly acquire cryptocurrencies such as Bitcoin, Ethereum, and other high-market-cap digital assets via secure custodial platforms or institutional exchanges. This direct control allows tailored risk management, clear oversight, and customized execution strategies. To optimize returns and mitigate risks, it is essential to actively manage these assets through comprehensive investment planning, which may include property management for real estate holdings and strategies to earn interest on digital assets.
Crypto funds and ETFs
Investing in regulated crypto funds or exchange-traded funds (ETFs) simplifies exposure and provides a diversified basket of digital assets. These vehicles often include professional investment management, may incorporate private equity strategies, and offer an accessible way to invest in digital assets. Vehicles like Bitcoin ETFs, crypto index funds, or thematic funds offer professional management and built-in diversification.
Yield-generating strategies
Allocations to yield-focused strategies, including stablecoin lending, crypto staking, or participation in regulated decentralized finance (DeFi) protocols, offer predictable income streams. These approaches complement traditional portfolio returns by providing attractive yield enhancement.
Liquidity is crucial for these strategies, as it enables real-time access to assets and efficient trading. Liquidity providers play a key role by supplying liquidity to digital asset platforms, supporting seamless trading and investment activities. Additionally, earning interest through these strategies requires accurate accounting to track interest income and manage financial data effectively.
Institutional-grade asset managers
Partnering with professional crypto asset managers is increasingly preferred by family offices. These asset managers offer several key benefits:
- Professional expertise: Managers bring specialized knowledge in crypto asset selection, risk management, and market timing, enhancing portfolio outcomes.
- Risk-controlled exposure: Professional managers employ sophisticated risk mitigation strategies like volatility management, stop-losses, and portfolio diversification.
- Operational efficiency: Institutional managers handle all aspects of digital asset investing - from custody, execution, and compliance, to reporting and tax optimization - simplifying family office operations.
- Access to exclusive opportunities: Asset managers can provide family offices with access to exclusive digital investment opportunities, institutional-quality deals, and sophisticated yield-generation techniques not easily available to individual investors.
- Transparent governance and reporting: Institutional-grade managers provide comprehensive, timely reporting, ensuring transparency, accountability, and alignment with your family office's governance policies.
When selecting institutional-grade crypto asset managers, prioritize those with a proven track record, robust infrastructure, and clear regulatory compliance. Engaging an experienced manager helps your family office navigate the complexities of digital asset markets efficiently and safely.
Sourcing institutional-grade crypto managers
Selecting the right crypto asset manager is crucial. When evaluating options, it is crucial to consider managers with a proven track record in the industry, particularly those backed by reputable companies or financial institutions. Key considerations include:
The strategic imperative for family offices
Crypto asset management is no longer an option - it’s a strategic imperative for family offices aiming to maintain portfolio relevance, mitigate systemic risk, and achieve robust diversification. With careful planning, secure infrastructure, disciplined governance, and strategic partnerships with institutional-grade crypto managers, family offices can navigate digital asset markets confidently.
Family offices should begin with thoughtful education, clear governance frameworks, and measured allocations that align with their overarching wealth objectives. By embracing crypto strategically, family offices can safeguard their legacies by preserving family wealth, managing the family's assets across generations, and actively involving family members in decision-making and succession planning. This approach ensures that family wealth and values are maintained and transferred effectively to future generations.
Ready to explore deeper? Engage with professional crypto asset managers and consultants who can tailor your family office’s digital asset strategy to meet your long-term wealth goals.
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The full breakdown
In our first article, "Navigating Crypto Volatility: The Advantages of Active Management," we explored how the high volatility and low correlation of digital assets with traditional asset classes create unique opportunities for active managers. We discussed how these characteristics enable active managers to execute tactical trading strategies, capitalizing on short-term price movements and market inefficiencies. Building on that foundation, we now turn our attention to the unique market microstructure of digital assets.
Conducive market microstructure of digital assets
The market microstructure of digital assets - a framework that defines how crypto trades are conducted, including order execution, price formation, and market interactions - sets the stage for active management to thrive. This unique ecosystem, characterized by its continuous trading hours, diverse trading venues, and substantial market liquidity, offers several advantages for active management, providing a fertile ground for sophisticated investment strategies.
24/7/365 market access
One of the defining characteristics of digital asset markets is their continuous, round-the-clock operation.
Unlike traditional financial markets that operate within specific hours, cryptocurrency markets are open 24 hours a day, seven days a week, all year round. This continuous trading capability is particularly advantageous for active managers for several reasons:
- Immediate response to market events: Unlike traditional markets that close after regular trading hours, digital asset markets allow managers to react immediately to breaking news or events that could impact asset prices. For instance, if a significant economic policy change occurs over the weekend, managers can adjust their positions in real-time without waiting for markets to open.
- Managing volatility: Continuous trading provides more opportunities to capitalize on price movements and volatility. Active managers can take advantage of this by implementing strategies such as short-term trading or hedging to mitigate risks and lock in gains whenever market conditions change. For instance, if there’s a sudden drop in the price of Bitcoin, managers can quickly sell their holdings to minimize losses or buy in to capitalize on the lower prices.
Variety of trading venues
The proliferation and variety of trading venues is another crucial element of the digital asset market structure. The extensive landscape of over 200 centralized exchanges (CEX) and more than 500 decentralized exchanges (DEX) offers a wide array of platforms for cryptocurrency trading. This diversity is beneficial for active managers in several ways:
- Risk management and diversification: By spreading trades across various exchanges, active managers can mitigate counterparty risk associated with any single platform. Additionally, the ability to trade on both CEX and DEX platforms allows managers to diversify their strategies, incorporating different levels of decentralization, regulatory environments, and security features.
- Arbitrage opportunities: Different venues often exhibit price discrepancies, presenting arbitrage opportunities. For example, managers can buy an asset on one exchange at a lower price and sell it on another where the price is higher, thus generating risk-free profits.
- Access to diverse liquidity pools: Multiple trading venues provide access to diverse liquidity pools, ensuring that managers can execute large trades without significantly impacting the market price.
Spot and derivatives markets (Variety of instruments)
The seamless integration of spot and derivatives markets within the digital asset space presents a considerable advantage for active managers. With substantial liquidity in both markets, they can implement sophisticated trading strategies and manage risk more effectively.
For instance, as of August 8 2024, Bitcoin (BTC) boasts a daily spot trading volume of $40.44 billion and an open interest in futures of $27.75 billion. Additionally, derivatives such as futures, options, and perpetual contracts enable managers to hedge positions, leverage trades, and employ complex strategies that can amplify returns.
Overall, the benefits for active managers include:
- Hedging and risk management: Derivatives offer a powerful tool for hedging against unfavorable price movements, enabling more efficient risk management. For instance, a manager holding a substantial amount of Bitcoin in the spot market can use Bitcoin futures contracts to safeguard against potential price drops, thereby enhancing risk control.
- Access to leverage: Managers can use derivatives to leverage their positions, amplifying potential returns while maintaining control over risk exposure. For instance, by employing options, a manager can gain exposure to an underlying asset with only a fraction of the capital needed for a direct spot purchase, thereby enabling more capital-efficient investment strategies.
- Strategic flexibility: By integrating spot and derivatives markets, managers can implement sophisticated strategies designed to capitalize on diverse market conditions. For instance, they may engage in volatility selling, where options are sold to generate income from market volatility, regardless of price direction. Additionally, managers can leverage favorable funding rates in perpetual futures markets to enhance yield generation. Basis trading, another strategy, involves taking offsetting positions in spot and futures markets to profit from price differentials, enabling returns that are independent of market movements.
Exploiting market inefficiencies
Digital asset markets, being relatively nascent, are less efficient compared to traditional financial markets. These inefficiencies arise from various factors, including regulatory differences, market segmentation, and varying levels of market maturity. For example:
- Pricing anomalies: Phenomena like the "Kimchi premium," where cryptocurrency prices in South Korea trade at a premium compared to other markets, create arbitrage opportunities. Managers can exploit these by buying assets in one market and selling them in another at a higher price.
- Exploiting mispricings: Active managers can identify and capitalize on mispricings caused by market inefficiencies, using strategies such as statistical arbitrage and mean reversion.
The unique aspects of the digital asset market structure create an exceptionally conducive environment for active management. Continuous trading hours and diverse venues provide the flexibility to react quickly to market changes, ensuring timely execution of trades. The availability of both spot and derivatives markets supports a wide range of sophisticated trading strategies, from hedging to leveraging positions. Market inefficiencies and pricing anomalies offer numerous opportunities for generating alpha, making active management particularly effective in the digital asset space. Furthermore, the ability to hedge and manage risk through derivatives, along with exploiting uncorrelated performance, enhances portfolio resilience and stability.
In our next article, we'll delve into the various techniques active managers employ in the digital asset markets, showcasing real-world use cases.
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