Ajit Singh noted that the crypto investment world has survived similar collapses arising from mismanagement.
The sudden collapse of global cryptocurrency exchange FTX has accelerated the yearlong downturn in bitcoin and other digital assets while igniting fresh concerns over the loosely regulated nature of the crypto industry.
But several public pension fund managers with modest crypto-related investments said they see no reason to give up on the sector.
"The washing out of weak players or inappropriate actors, while causing volatility and while admittedly stressful, is ultimately a healthy thing," said Andrew J. Spellar, chief investment officer of the $4.5 billion Fairfax County Employees' Retirement System, in an email.
And Ajit Singh, CIO of the $5.3 billion Houston Firefighters' Relief & Retirement Fund, points out that the crypto investment world has survived and even thrived in the wake of similar collapses arising from scandal and mismanagement.
"The current FTX fiasco is déjà vu because in 2014 the largest crypto exchange, Mt. Gox, failed with billions in bitcoins missing," Mr. Singh said, in an email. "Within hours, bitcoin dropped 23% to $418. It has substantially rebounded since then, even with all this price volatility."
"We believe something good will come out of this as better regulations will protect consumers and increase adoption," he added.
Not all investors currently share the optimism of Messrs. Spellar and Singh though.
During the week ended Nov. 13, FTX's problems fueled a spike in outflows across global crypto exchanges. According to Bloomberg, users yanked a net $3.7 billion worth of bitcoin and $2.5 billion of ether from these exchanges. They withdrew more than $2 billion worth of many of the largest stablecoins over the same time frame.
Over the past 10 days, the price of bitcoin has fallen from $21,400 on Nov. 5 — shortly before FTX's troubles were known to investment markets — to $16,648 as of noon EST Thursday, a 22% decline. Other crypto-related investments such as the crypto token, ether, and the actively managed Amplify Transformational Data Sharing ETF, which invests in companies in the blockchain and cryptocurrency sectors, have fallen sharply in the wake of FTX's collapse, adding to declines of the past year.
Since November 2021, when bitcoin hit an all-time high of more than $68,800, the price has fallen by more than 75%.
The poor performance of crypto-related assets over the past year has only served to validate the skepticism of Stephen Sexauer, CIO of the $14.4 billion San Diego County Employees Retirement Association.
"It's a big leap for a pension fiduciary to speculate in crypto assets and it's close to impossible to find investment analysis that ties crypto company financials to anything in the real economy," said Mr. Sexauer, who has steered clear of all crypto-related investments, in an email. "We are sticking with real assets connected to the real economy where the earnings, cash flows, and assets grow with global economic growth."
Of FTX's collapse and subsequent Chapter 11 bankruptcy filing, Mr. Sexauer added: "It's amazing what hubris and arrogance can accomplish with other people's money, especially when the money is thrown at them.''
Fairfax County's Mr. Spellar, for his part, is comfortable with his crypto-related investments, which include six different investments totaling $85 million, mostly through venture-capital vehicles with expected life cycles of 10 to 12 years. "Our underlying investment thesis — that the innovation around blockchain technology is a high growth area going forward —has not changed," he said.
And Mr. Singh said he's not trimming or adding to his current crypto portfolio, which consists of a $25 million investment in bitcoin and ethereum. "Given our small exposure, we are well positioned to tolerate this increased volatility due to contagion," he said.
