Asset managers bet big on crypto despite market rout
Big-name money managers are stampeding into digital assets, finding new ways to monetise investor interest even as trading volumes and prices for bitcoin and other cryptocurrencies have slumped.
FTSE 100-listed Abrdn this week became the latest investment house to take the plunge, by buying a stake in a regulated UK digital assets exchange Archax. The stake will allow the £508bn-in-assets fund manager a board seat and represents a bet that Archax’s technology will underpin how funds, shares and other securities are traded in future.
Abrdn’s investment, which has not been previously reported, comes as BlackRock, the world’s largest money manager, has not only announced plans for a spot bitcoin trust for institutional investors but also agreed to link its Aladdin technology platform to the Coinbase crypto exchange. The latter move should ease the way for the 82,000 investment professionals that use Aladdin to offer clients access to bitcoin.
Meanwhile Charles Schwab, the US broker and investments group, last week launched an exchange traded fund aimed at giving investors exposure to crypto without actually buying the currencies. And UK asset manager Schroders bought a stake in digital assets manager Forteus in July.
While Fidelity has been offering digital asset custody services for nearly five years and in April added a bitcoin option to its retirement offerings, this summer’s activities signal a broader acceptance of digital assets, market analysts said.
“Large asset managers are starting to consider this a real investment,” said Chris Brendler, a senior research analyst at DA Davidson. “I think it’s a major data point in terms of traditional asset management companies embracing what really for years has been almost ridiculed.”
BlackRock founder Larry Fink used to be among the sceptics, quipping in 2017 that “bitcoin just shows you how much demand for money laundering there is in the world”.
The new digital offerings come after digital assets endured a brutal market sell-off that has cut the total market capitalisation of cryptocurrencies from about $3.2tn in November to less than $1tn.
But Charley Cooper, managing director at blockchain firm R3 and a former top staffer at the US Commodity Futures Trading Commission, argues that the fact that they went ahead represents a vote of confidence. “Deals like this are not thrown together last-minute. These things have been in the works for months if not years . . . It’s not like they decided to do it on the fly.”
That is what concerns consumer groups. “Just because top-tier companies want to make money from something new, that doesn’t make it a good thing to do,” said Dennis Kelleher, head of Better Markets, an investor advocacy group based in Washington. “That volatility would normally be a red flag warning.”
The wide variety of digital asset deals reflects the nascent nature of the asset class and regulatory scepticism around retail products that invest directly in bitcoin. BlackRock has avoided this by offering a private fund to institutional investors, and the Schwab ETF invests in listed companies that aim to profit from offering services to crypto investors or from the underlying blockchain digital ledger technology.
“We know they are a speculative investment, but we have identified it as a long-term trend,” said David Botset, head of equity product management at Charles Schwab’s asset management arm.
Abrdn’s stake in Archax is a similar bet. Founded in 2018 by former hedge fund executives Graham Rodford, Andrew Flatt and Matthew Pollard, Archax provides a platform for institutional investors to trade cryptocurrencies and tokenised securities such as fractions of shares in companies. Over time, Abrdn hopes to reap “substantial revenue” by giving clients access to its funds in tokenised form as well as assets that are less easily tradeable such as private debt, private equity and buildings, on the exchange.
“Our view is that the next disruptive event will be the transfer from electronic trading to digital exchanges and trading through digital securities,” said Russell Barlow, global head of alternatives at Abrdn who was instrumental in finalising the deal. “Being there at the beginning is going to put us in a really strong position.”
Earlier this week Abrdn posted a first-half loss of £320mn as an outflow of clients pushed down its assets under management and administration.
What does the future hold for digital currencies? Our digital finance news editor Philip Stafford and digital assets correspondent Scott Chipolina had a broad discussion on an Instagram live about this topic, including the impact of regulation and inflation on crypto. Watch it here.