Crypto asset managers seek next big coin for portfolio diversification

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Crypto asset managers seek next big coin for portfolio diversification

The next innovation in cryptocurrencies won’t come from the introduction of a Solana ETF . Asset managers say they’re more focused on other ways investors can diversify their portfolios with crypto. The launch of the highly anticipated bitcoin ETFs in January was a success, but many are wondering what’s next for the industry. Some crypto enthusiasts are speculating about which coin will next be put into an ETF wrapper (many are speculating it could be Solana), but asset managers at the Wyoming Blockchain Symposium in Jackson ***** say the search is about more than that alone. “As we think about how to educate investors about this broader ecosystem, it’s not individual token by token, but rather … how do we think about portfolio construction and from there, how do we create exposures representing different sectors within this growing ecosystem,” said Cynthia Lo Bessette, head of digital asset management at Fidelity Investments. “There’s an opportunity for us to be able to add value beyond just individual access to just some of the largest crypto tokens.” Actively managed products Steve Kurz, global head of asset management at Galaxy, pointed to his firm’s recent partnership with custody giant State Street to develop active trading products. “That is not about the next coin, it’s about the 75 securities that are now linked to crypto – the fact that there are futures, options, crypto ETFs, all kinds of exchange traded vehicles globally,” he said. “The accordion has expanded so much in just one year that you can start to have active strategies.” “While that’s not what I think the average crypto asset manager would say the path would have been, that is a path that brings crypto awareness and crypto education through a different set of tools,” he added. Outside the U.S., investors can buy the CoinShares Physical Staked Solana ETP, for example. And ETFs tracking the price of spot bitcoin were available in Canada in 2021, long before they were approved in the U.S. Diversifying portfolios Diversifying crypto exposure beyond focusing on single coin products could be key for some asset managers. There are 11 bitcoin ETFs now available in the U.S. that, aside from their fee structures, look more or less the same for most investors. “If you’re looking at the profitability of the asset management business in a platform sense, over the next three or four years, it’s about moving into [alternative] products,” Kurz said. “Hedge funds, liquid token funds, venture funds – those are all models that are being tested. Investors and wealth managers who are comfortable in bitcoin generally recommend a small allocation —between 1% and 5% — to add risk to a portfolio without subjecting it to too much of the cryptocurrency’s notorious volatility. Having different crypto-linked securities coming to market, however, could give asset managers an opportunity to shake up that standard and lift client expectations. “Active management becomes part of the conversation, and your differentiation isn’t on fees or total cost of ownership, it’s now on what strategies are you creating, what alpha are you generating – and that’s that’s when we know we’ve actually achieved something in terms of it becoming an asset class,” Kurz said. “You really haven’t had a true asset management industry in crypto, it’s been a cottage industry until the bitcoin ETF happened,” he added.

The next innovation in cryptocurrencies won’t come from the introduction of a Solana ETF. Asset managers say they’re more focused on other ways investors can diversify their portfolios with crypto.

The launch of the highly anticipated bitcoin ETFs in January was a success, but many are wondering what’s next for the industry. Some crypto enthusiasts are speculating about which coin will next be put into an ETF wrapper (many are speculating it could be Solana), but asset managers at the Wyoming Blockchain Symposium in Jackson ***** say the search is about more than that alone.

“As we think about how to educate investors about this broader ecosystem, it’s not individual token by token, but rather … how do we think about portfolio construction and from there, how do we create exposures representing different sectors within this growing ecosystem,” said Cynthia Lo Bessette, head of digital asset management at Fidelity Investments. “There’s an opportunity for us to be able to add value beyond just individual access to just some of the largest crypto tokens.”

Actively managed products

Steve Kurz, global head of asset management at Galaxy, pointed to his firm’s recent partnership with custody giant State Street to develop active trading products.

“That is not about the next coin, it’s about the 75 securities that are now linked to crypto – the fact that there are futures, options, crypto ETFs, all kinds of exchange traded vehicles globally,” he said. “The accordion has expanded so much in just one year that you can start to have active strategies.”

“While that’s not what I think the average crypto asset manager would say the path would have been, that is a path that brings crypto awareness and crypto education through a different set of tools,” he added.

Outside the U.S., investors can buy the CoinShares Physical Staked Solana ETP, for example. And ETFs tracking the price of spot bitcoin were available in Canada in 2021, long before they were approved in the U.S.

Diversifying portfolios

Diversifying crypto exposure beyond focusing on single coin products could be key for some asset managers. There are 11 bitcoin ETFs now available in the U.S. that, aside from their fee structures, look more or less the same for most investors.

“If you’re looking at the profitability of the asset management business in a platform sense, over the next three or four years, it’s about moving into [alternative] products,” Kurz said. “Hedge funds, liquid token funds, venture funds – those are all models that are being tested.

Investors and wealth managers who are comfortable in bitcoin generally recommend a small allocation —between 1% and 5% — to add risk to a portfolio without subjecting it to too much of the cryptocurrency’s notorious volatility.

Having different crypto-linked securities coming to market, however, could give asset managers an opportunity to shake up that standard and lift client expectations.

“Active management becomes part of the conversation, and your differentiation isn’t on fees or total cost of ownership, it’s now on what strategies are you creating, what alpha are you generating – and that’s that’s when we know we’ve actually achieved something in terms of it becoming an asset class,” Kurz said.

“You really haven’t had a true asset management industry in crypto, it’s been a cottage industry until the bitcoin ETF happened,” he added.

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