Crypto Fund Makes Buffett-Style Bet Digital Coins to Beat Stocks

(Bloomberg) -- Warren Buffett is the unlikely inspiration for a cryptocurrency fund seeking to disprove the sector’s critics.

Morgan Creek Digital is challenging investors who say cryptocurrencies are worthless, or that equities are a better investment, to take the other side of a wager: that the largest digital coins will outperform the S&P 500 Index over the next decade.

The gamble evokes a bet between Buffett and investment manager Ted Seides. Buffett wagered that an S&P 500 index fund would outperform a portfolio of funds of hedge funds -- and won.

Buffett is a vocal critic of digital coins, who has said they will come to a bad ending and that Bitcoin is “probably rat poison squared.” So far this year, the legendary investor’s instincts look good: Cryptocurrencies crashed to earth in 2018, with Bitcoin losing over 70 percent of its value and other tokens losing even more.

That doesn’t dissuade Anthony Pompliano, a partner and founder of Morgan Creek Digital. If the firm loses, his fund’s principals will pay $1 million to whoever accepts the bet.

“Bitcoin and crypto assets have been the best-performing asset for the last 10 years,” said Pompliano. “They have beat the S&P 500, and we believe they will continue to do so for the next 10 years.”

His firm, which will select a single willing investor for the bet, is the crypto affiliate of Mark Yusko’s $1.5 billion Morgan Creek Capital Management. Pompliano declined to disclose assets under management for Morgan Creek Digital.

Morgan Creek’s wager is that the Digital Asset Index Fund of the largest cryptocurrencies, which it provides with Bitwise Asset Management, will outperform the U.S. benchmark over a 10-year period starting Jan. 1. The fund is comprised of coins including Bitcoin, Ethereum, Bitcoin Cash, EOS and Litecoin.

Pompliano might need that decade-long timeframe for his bet: If technical indicators are to be believed, further losses are on the immediate horizon for crypto. But that could make his bet even more like Buffett’s. In 2008-09, the first year of the wager, he was significantly underwater as the S&P 500 plunged.

©2018 Bloomberg L.P.