The next innovation in cryptocurrency won’t come from the introduction of a Solana ETF. Asset managers say they are more focused on other ways investors can diversify their portfolios with crypto.
The start of the long-awaited bitcoin ETFs in January were successful, but many are wondering what’s next for the industry. Some cryptocurrency enthusiasts are speculating about which coin will be placed in an ETF wrapper next (many speculate it could be Solana), but asset managers at the Wyoming Blockchain Symposium in Jackson Hole say the search is about more than just that. .
“As we think about how to educate investors about this broader ecosystem, it’s not about individual exposure, but rather … how we think about portfolio construction and from there, how we create exposures that represent different sectors in this growing ecosystem,” he 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 biggest crypto brands.”
Actively managed products
Steve Kurz, global head of asset management at Galaxy, pointed to his company’s recent partnership with custody giant State Street to develop active trading products.
“It’s not about the next currency, 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. “Accordion has expanded so much in a year that you can start having active strategies.”
“While this is not what I think the average crypto asset manager would say the path would be, this is a path that brings crypto awareness and crypto education through a different set of tools,” he added.
Outside the US, investors can buy the CoinShares Physical Staked Solana ETP, for example. And ETFs tracking the spot price of bitcoin were available in Canada in 2021, well before they were approved in the US
Portfolio diversification
Diversifying crypto exposure beyond a focus on single currency products could be key for some asset managers. There are 11 bitcoin ETFs now available in the US that, aside from their fee structure, look pretty much the same to most investors.
“If you look at the profitability of the asset management business in terms of the platform, over the next three or four years, it’s about moving to [alternative] products,” Kurz said. “Hedge funds, liquid token funds, venture funds – these are all models being tested.
Investors and wealth managers comfortable with bitcoin generally recommend a small allocation—between 1% and 5%—to add risk to a portfolio without overexposing it to the cryptocurrency’s notorious volatility.
However, the presence of different crypto-linked securities in the market could give asset managers an opportunity to shake up this standard and raise client expectations.
“Active management becomes part of the conversation and your differentiation is not about fees or total cost of ownership, but now it’s what strategies you create, what alpha you create – and that’s when we know we’ve really hit something in terms of becoming a category assets,” Kurz said.
“You really didn’t have a real asset management industry in crypto, it was a cottage industry until the bitcoin ETF happened,” he added.
