The Venezuelan bolivar, Carlos Mosquera Benatuil will begrudgingly admit, is a “real” currency. Bitcoin isn’t—it’s basically just a very long line of computer code. Yet there’s no question which the 35-year-old Caracas native prefers.
Mosquera is one of Latin America’s many bitcoin believers, scarred by the hyperinflation that’s ravaged the economies of Brazil, Argentina, Bolivia, Peru, and now Venezuela. The region’s tech-savvy middle class, he says, began adopting bitcoin a few years ago to protect their savings from rising consumer prices and currency controls. Now, Latin America’s wealthiest investors want in on the action. The growing interest from them could help propel investments in the currency going forward.
At least two cryptocurrency funds catering specifically to this set opened in 2017 as demand for digital assets in the region grows. Family offices make up the great majority of the funds’ clients, according to recent interviews with the funds’ founders. “Latin America is very volatile,” says Rome-based Mosquera, whose hedge fund, Solidus Capital, invests in the eight biggest cryptocurrencies and digital assets sold via initial coin offerings. (He won’t disclose the size of the fund or its performance.) “Cryptos are turning into a new haven for these families.”
Two funds is a small number, to be sure; more than 100 hedge funds are focused on crypto-currency globally. But these modest beginnings also speak to bitcoin’s drug-dealing, money-laundering notoriety, which scared off Latin America’s risk-averse family offices. Then came 2017. Even the region’s billionaires haven’t been able to ignore bitcoin’s gravity-defying climb into finance’s rafters. The cryptocurrency surged from a low near $750 in January to a high-water mark above $16,000 in early December, with plenty of dramatic moments along the way. Nor have the wealthy been immune to Latin America’s recent patch of anemic growth. Family offices in emerging markets fared worse than anywhere else last year, with average gains of 6.2 percent vs. North America’s 7.7 percent, according to a UBS/Campden Research report.
Mosquera says his clients are interested in more than the spectacular returns. They’re also betting on the underlying blockchain technology, which cuts third parties out of money transfers and records transactions in a tamperproof online ledger. For his part, he first became enamored with bitcoin in 2013, when it traded for about $70; he saw it as a viable solution to the skyrocketing prices eating into Venezuelans’ savings and spending power. Bitcoin also provided a way to skirt the government’s tightening controls on access to U.S. dollars—“the most prized asset in Venezuela,” Mosquera says. “If you have dollars, even if you don’t have a lot, inflation makes you rich in little time.”
Two years later, with the country’s economy continuing to unravel and the government becoming increasingly wary of cryptocurrencies, he took advantage of his European passport and escaped to Rome. Mosquera focused on trading before starting Solidus, and he began accepting funds from family offices based in Central America, Mexico, and the Caribbean about seven months ago.
Roberto Ponce Romay says 12 family offices make up the majority of the investors in his Miami-based Crypto Assets Fund, which he opened in September. “We’re convinced this will become a new asset class, just like stocks and bonds,” says Ponce, who founded private equity firm Invermaster Ventures 10 years ago after quitting his job as a manager at consulting firm Bain & Co. Argentine investors make up a third of the current fund, Colombians and investors from other Central American nations make up another third, and the rest is split among families from other Latin American countries, Ponce says.
Invermaster’s Crypto Assets Fund, which has $15 million in digital coins under management, acts like a passive index fund, with the weighting of each coin corresponding to its market capitalization. Ponce says by 2018 he plans to open a second cryptocurrency fund, CAF 2, which will be more actively managed. His goal is to increase CAF to $50 million under management and to raise $100 million for CAF 2, which he’ll invest entirely in cryptocurrencies…