Huobi Group CFO
The growing trend of traditional asset managers muscling into digital assets has picked up pace – as noted in my earlier blog about rising institutional interest in the asset class.
Recent prominent examples include Abrdn which took a stake in Archax, a regulated digital exchange in the UK; BlackRock which has an institutional bitcoin trust and a technology platform linked to Coinbase, Charles Schwab which launched a crypto ETF, and Schroders which bought into digital assets manager Forteus in July.
These developments are encouraging as they not only reflect growing acceptance of cryptocurrencies in the asset management industry, but also broaden the retail investor base by introducing digital assets to those who prefer to invest with established and trusted names.
The timing of these moves, many of which took place after the crypto market downturn in May, also speaks to the companies’ confidence in digital assets despite weakened investor sentiments.
Why asset managers are turning to crypto
Part of the enthusiasm could be attributed to FOMO – the fear of missing out – as the Financial Times noted in an editorial. Arguing that asset managers need to be open to multiple futures of finance, the publication said that cryptocurrencies could help to hedge the portfolios of sophisticated investors, similar to other alternative assets such as wine or gold.
While it is uncertain for now as to whether cryptocurrencies can regain their lost valuation following the market rout, history has shown that some parts of markets continue to thrive even after bubbles burst. By being ahead of the curve, these asset managers can better prepare for the launch of central bank digital currencies, when they build their capabilities and know-how in the underlying blockchain technology.
Indeed, FT makes a strong case for traditional fund houses’ move into digital assets: “(It) is perfectly possible to embrace the technology, entrepreneurial spirit and innovation of crypto while remaining at arm’s length from the asset class itself.”
What’s in it for ordinary investors
What does this mean for ordinary investors, in particular those who had held off from buying cryptocurrencies due to concerns with their price volatility?
Such individuals may prefer to make their maiden investment in cryptocurrencies through traditional asset managers, given the latter’s reputation, regulated status and established track records. If doing so gives such investors more confidence, this can help them take baby steps towards making cryptocurrencies a key part of their portfolio.
It is also not inconceivable that such investors, after accumulating experience and knowledge from their crypto investments, will move on to digital exchanges such as Huobi Global. This scenario becomes more plausible with increasing regulation of the digital assets industry, and as players such as Huobi Global pursue compliant growth worldwide.
When more crypto platform users enjoy protection from regulations and industry compliance, this will further narrow digital assets’ gap with traditional investments and accelerate the growth of the former.
While it remains to be seen if the initial crypto forays by asset managers will gain traction, this trend should be welcomed by the digital assets industry and investors alike. For the latter, the increase in traditional fund houses with crypto offerings can translate to greater investor protection and education. That can only be a good thing, when it all comes down to growing your money in an increasingly volatile and uncertain world.
This communication has been prepared solely for informational or educational purposes only and it is subject to change. This communication should not be relied upon as the basis for making any investment decision or be construed as a recommendation to engage in any transaction or be construed as a recommendation of any investment strategy. This communication is not a personal recommendation and does not take into account whether any transaction is suitable for a particular person. The information contained in this communication is based on sources considered to be reliable, but not guaranteed, to be accurate and complete. Huobi Global is not responsible for any information obtained or derived from third party sources or statistical services. Any opinions or estimates expressed herein reflect the position as taken as of this date (or date of publication), and are subject to change without notice.