Crypto for Advisors: Crypto Trends

It’s a pleasure to introduce our latest addition to the Ask an Expert team, Marissa Kim from Abra Capital Management. She will be sharing her expertise on how to foster clients’ investment enthusiasm for cryptocurrencies within this platform.

– Sarah Morton

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Measuring Trends in Institutional Interest in Crypto

Beginning in 2019, Fidelity’s institutional business sector specializing in cryptocurrencies has released an annual survey titled the “Fidelity Institutional Investor Digital Assets Survey.” This study aims to assess the attitudes and actions of institutional investors towards crypto investments on a global scale.

In simpler terms, the 2023 survey shows a mostly positive but still uncertain perspective towards cryptocurrencies following the volatile year of 2022.

Trends Reflecting Positive Sentiment

Trends Reflecting Negative Sentiment

As a crypto investor, I’d like to point out that the recent survey only covers the period from May 30, 2023, to October 6, 2023. However, it is essential to consider that a significant portion of Bitcoin’s price surge happened after this timeframe. The crypto market experienced substantial growth at the end of 2023, with Bitcoin reaching an all-time high of around $74,000 due in large part to the SEC’s approval of spot Bitcoin ETFs, which took place in January 2024. Given the market capitalization of crypto had surpassed $2.5 trillion by the start of 2024 and Ethereum spot ETFs were soon to follow, it is reasonable to assume that investor perceptions have shifted considerably since the beginning of the year.

What to look for in 2024

As a researcher looking back on the digital asset market landscape, it’s clear that some pivotal moments took place after our survey, significantly influencing the industry. Notably, regulatory clarifications have been implemented, which could potentially lead to reduced price instability and expanded investment opportunities for investors.

Will the surprise SEC approval of spot Ether ETFs diminish regulatory concerns among institutions?

The digital asset market is experiencing a shift from early acceptance to widespread adoption. In 2023 and the beginning of 2024, there was a significant transformation in industry leadership, product innovation, and commitment to trust from traditional financial institutions towards cryptocurrencies. This transition might take some time before it becomes more deeply ingrained in institutional investments. However, the approval and subsequent popularity of spot bitcoin ETFs, with aggregate assets under management doubling from around $30 billion in January to nearly $60 billion by mid-June, could serve as early signs of increased institutional interest in crypto.

Will concerns about price volatility persist?

As a researcher studying the digital asset class, I’ve observed that volatility in this sector has been significantly higher than other traditional asset classes. However, I’ve noticed a downward trend in volatility over time. This could be due to several factors, including improving regulatory conditions and the increasing availability of institution-friendly products. These developments may help stabilize the markets further.

Will institutional investments predominantly go towards investing in Bitcoin and Ethereum spot ETFs, or will they opt for a more diverse investment approach by allocating funds to structures such as Separately Managed Accounts (SMAs), private funds, and Venture Capital firms, which offer exposure to a wider range of blockchain assets beyond Bitcoin and Ethereum?

In 2023, significant strides were made in the infrastructure of industries pertaining to custody, trading, and asset management. As a result, investors now have a more mature, albeit still developing, selection of investment products and platforms. These new offerings not only help mitigate risks associated with being early adopters but also provide opportunities to capitalize on early-adopter advantages. Among these alternatives, apart from Exchange-Traded Funds (ETFs), there is growing popularity for the Single Manager Active Account (SMA) direct-index vehicle.

As a researcher studying the intersection of traditional finance and cryptocurrencies, I ponder over the following question: With the escalating number of blockchain data providers and the increasing influence of institutional digital asset managers, how will this trend impact the familiarity of institutions with crypto fundamentals and techniques for evaluating digital assets?

Approximately one out of every three 2023 survey respondents identified a “insufficient foundational knowledge to assess proper worth” as an obstacle for investing in this particular asset class. The significant proportion underscores the burgeoning character of blockchain technology and the challenge of evaluating its value based on conventional methods. Nevertheless, this percentage has decreased from 44% in 2021. As investors grow more accustomed to blockchain technology and discover novel approaches for assessing a protocol’s worth to end users, this figure may continue to decline.

– Connor Farley, CEO,Truvius

Ask an Expert

Q: What else should I be thinking about aside from buying and holding Bitcoin?

Expert: For those seeking investment in digital assets, it’s wise to spread out the exposure, just like with conventional assets. Bitcoin serves as a solid foundation for any portfolio in this space. However, Ethereum and Solana are gaining traction and could be worthwhile additions. Institutions are increasingly favoring Ethereum due to its growing popularity among enterprise applications, while Solana caters to consumer payment solutions. It’s essential for financial advisors to move their clients’ assets away from exchanges and into secure custody solutions to maintain control and accessibility to their investments.

Q: Should I get exposure through ETFs?

Expert: ETFs offer convenience for individual investors, but they can’t match the versatility and benefits of directly owning digital assets. Digital assets are constantly traded around the clock, while ETFs only transact during regular market hours. Additionally, yield generation is not an option with ETFs, which could be a significant source of income and cannot serve as collateral for loans. For clients possessing substantial Bitcoin holdings, borrowing against their digital assets might be more advantageous than selling and facing capital gains taxes.

Q. Which client demographic are digital assets most suitable for?

When it comes to determining the appropriateness of digital assets for clients, it’s essential to consider their risk tolerance and financial objectives. For those with a low risk appetite, digital assets can function as a valuable reserve, offering potential returns through staking. On the other hand, high-risk investors might be drawn to investing in budding blockchain startups or more complex DeFi investment schemes for higher yields. Customizing strategies based on unique client requirements allows for a well-rounded incorporation of digital assets into wealth management plans.

– Marissa Kim, head of Asset Management, Abra Capital Management

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