Crypto inflows defy crash in fund values
In the eyes of many, cryptocurrencies defy convention merely by existing, backed as they are by nothing more substantive than lines of computer code.
But, despite a crash in their value in recent months, the digital tokens have continued to attract investment via exchange traded products.
Typically, humans, being herd animals, will often show a tendency to pile into financial assets that are rising in value, and to run for the hills when valuations are falling — ignoring the logic of arguments to buy in at low prices.
Asset managers have also kept faith rather than being disheartened by the losses. A total of 39 crypto ETPs were launched in the first seven months of 2022, according to TrackInsight. This pace is in line with the 68 launches during the calendar year 2021, and far more than witnessed in all years prior to 2021 combined.
Even the biggest providers are starting to show interest. In August, BlackRock, the world’s largest asset manager, unveiled plans for a spot bitcoin private trust in the US, where physical crypto ETPs are still outlawed. This is despite chief executive Larry Fink saying in 2017 that “bitcoin just shows you how much demand for money laundering there is in the world”.
However, five years ago, BlackRock also conceded that, despite a steep downturn in the digital asset market at the time, it was “still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets”.
In July, the UK investment house Abrdn bought a stake in a digital assets exchange, just a few weeks after rival Schroders acquired a minority holding in Swiss digital asset manager Forteus.
Rosenbluth suggests that one factor fuelling the launch frenzy was the limited degree of product differentiation inherent in crypto ETPs. Competition is typically on the basis of cost or liquidity — so being an early mover may be essential to having long-term success in gathering assets at sufficient scale.
Lamont also believes crypto is one of the few fields in which there is “virgin soil” for providers to stake a claim, given how crowded most of the ETF landscape has become.
This is fuelling a land grab. “There is a clear feeling in the industry that everybody would like to be involved,” Lamont says. “It’s a new asset class. Just because we have seen a global price tumble, it doesn’t mean that this is not here to stay in one form or another.”
As a result, products are “being launched in anticipation of the next crypto bull run,” Lamont says.
“Most people think that, unless [cryptocurrencies] are regulated out of existence, they will be around forever in one form or another. The genie is out of the bottle.”
This story originally appeared on: Financial Times - Author:Steve Johnson
