Smaller, more specialized companies are meeting the growing demands of retail investors for cryptocurrency exposure, yet major funds remain wary.
Despite the recent turmoil in the cryptocurrency market, virtual asset investment products saw an average of $66.5 million in weekly inflows during May, according to data from CryptoKitties. These assets, such as the Grayscale Bitcoin Trust and exchange-traded products, enable investors to enter crypto products by providing exposure without directly holding the tokens.
Specialized Firms Benefiting
Managers offering these products have found a major client base among do-it-yourself investors rather than institutional clients. “Crypto asset management is a very retail-driven allocation,” said Jean-Marie Mognetti, CEO of CoinShares. The Jersey-based company offers a number of crypto exchange-traded products.
Many large firms may also lack the technical expertise required to confidently deal with crypto assets. “The level of technical detail you need is pretty high,” said Ophelia Snyder, co-founder and president of 21Shares. “This reality disproportionately benefits specialized firms.” However, the co-founder of the Swiss-based crypto fund group believes that the acceptance of digital assets has already come a long way. “When we launched the product four years ago, no one would touch it,” recalls Snyder.
Yet, as smaller companies cater to individual needs, traditional fund providers for institutional clients, such as BlackRock’s iShares and Vanguard, are still unapologetic about crypto. Recent volatility has underscored a long-standing belief that crypto is too volatile to be a suitable fund investment.
Timur Hayat, chief operating officer of the $1.4 trillion asset manager PGIM Group, has examined cryptocurrencies intelligently. “With a market capitalization of over $1 trillion, cryptocurrencies have grown so large that it cannot be ignored,” he said in a recent report. “For institutional investors, they offer the allure of exceptional and diversified returns in a market that is now of sufficient size and liquidity for meaningful institutional positions.”
Ultimately, PGIM concluded that digital assets as investment products were disappointing. “Despite the hype, we find little evidence that cryptocurrencies offer any meaningful opportunities for institutional investors,” Hyatt explained.
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