Bitwise executive: Institutional encryption allocation falls into a trap! Abandon the "Lock-up Position premium" mindset and embrace on-chain Liquid Alpha.

Jeff Park, the active portfolio manager at Bitwise Asset Management and Chief Investment Officer of ProCap BTC, made a significant statement, pointing out that it is a major strategic misjudgment for institutional investors to apply the traditional "illiquidity premium" investment framework to crypto assets. Park believes that the unique "liquidity excess return" potential of the crypto market (Liquid Alpha) is severely underestimated, and institutions over-allocating to crypto venture capital (VC) are missing out on high-efficiency opportunities such as on-chain arbitrage and market making. He emphasized that the volatility of the crypto market is an advantage rather than a risk, with a monthly trading volume of $2.5 trillion showcasing its scalability, calling on institutional investors to abandon the decade-long lock-up mindset and restructure their crypto asset allocation strategies.

Traditional Framework Fails: The Crypto Market Disrupts the Logic of "Non-Liquidity Premium"

Institutional investors have long adhered to the creed of "illiquidity premium," firmly believing that locking capital in private equity, credit, or venture capital can yield excess returns. However, Bitwise's Jeff Park points out that this traditional framework is severely out of place in the crypto arena. Park cites the legendary CIO of the Yale Endowment Fund, David Swensen, and his "endowment model" (allocating 70% of capital to alternative assets) as a reference, noting that its core principle—that long-term illiquid investments must be accompanied by return premiums—has been disproven in the crypto space.

Excess Liquidity Returns: Unique Game Rules of the Crypto Market

Park proposed the concept of "excess returns on liquidity" ( Liquid Alpha ), believing that this is precisely the core advantage of digital assets. "In the crypto field, the structure of the yield curve shows 'spot premium' ( Backwardation ), where investors receive compensation in the short term that far exceeds the long term. You earn substantial returns by taking on liquidity risk, and your report card is updated daily, without having to wait ten years," Park explained. He cited the example of the market situation in early April 2024: although Bitcoin fell by 7%, the annualized return for market-making strategies reached 70%, and the return rate for arbitrage strategies was 40%. Such opportunities are shaking the foundations of the theory of illiquid investment portfolios.

Institutional Allocation Misalignment: Overly Betting on Crypto VC While Ignoring the Efficient Spot Market

Park criticized that current institutions still follow traditional paths, heavily investing in crypto risk investment (VC). This seriously ignores the scale and efficiency of the liquidity crypto market—only in May 2023, the trading volume of spot assets exceeded $25 trillion, and Bitcoin futures trading volume simultaneously reached $25 trillion. "For institutions, the scalability of the liquidity crypto market far exceeds that of the venture capital market, which is naturally limited in capacity and doomed to fail in scaling to achieve excess returns," Park emphasized.

Fluctuation is Advantage: Unlocking Short-term High-yield Opportunities

Park pointed out that the high Fluctuation of the crypto market should be viewed as an institutional advantage rather than a risk. "If the S&P 500 index achieves a volatility close to 70%, the expected returns from private equity will be completely rewritten," he analogized. In the crypto space, this Fluctuation releases a large number of short-term opportunities that large institutions can capture without a ten-year lock-up period.

Bitwise Practice: Multi-Strategy Capture of On-Chain Liquidity Alpha

Bitwise has already laid out multi-strategy products around this theory, capturing on-chain liquidity excess returns through Arbitrage (, Market-Making ), and Trend-Following (. Park believes that if Swenson, who advocates for non-traditional strategies, were alive, he would appreciate this crypto application. He quotes Swenson's famous saying: "Building and maintaining an unconventional portfolio requires embracing uncomfortable specificities, which often appear extremely imprudent from a traditional perspective... This sounds exactly like a depiction of the crypto market."

Conclusion

Jeff Park's insights point directly to the core contradiction in institutional crypto allocation—game theory of "locked-up thinking" versus the "instant alpha" market. As on-chain derivative tools improve and the scale of spot ETFs expands, the advantages of liquidity strategies will become increasingly prominent. For institutions seeking differentiated returns, reconstructing the investment framework and embracing the high-frequency fluctuations and deep liquidity of the crypto market may become the key to breaking through as the next generation of "investment dissenters." Crypto asset allocation is undergoing a strategic turning point from "imitating traditional VC/PE" to "defining a new paradigm of liquidity."