Cryptocurrency Becomes a Differentiator for Asset Managers

December 6, 2021 — Boston

A lack of action from asset managers on the matter will effectively cede marketshare to competitors

Despite caution from regulators and advisors, a greater number of investors are investing in cryptocurrency. As cryptocurrency becomes more mainstream, asset managers will need to understand the emerging asset class and decide whether it is one in which they should develop expertise and offer products, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

Recent developments in the cryptocurrency space certainly create a case for increased attractiveness and possible participation in the ecosystem. However, cryptocurrency is not necessarily appropriate for every investor or advisor with a desire to try something new, nor is it easy to understand. Cerulli believes that individual investors will benefit from the guidance of trusted asset managers to help navigate this complex landscape.

According to Cerulli, close to 70% of advisors do not expect to use cryptocurrency when creating portfolios, but close to 30% either have done so or envision taking this leap. “It is certainly possible that a broad range of asset managers find their niche and ability to deliver needed expertise in the management of cryptocurrency products,” says Daniil Shapiro, associate director. “Cryptocurrency may provide active managers with an opportunity to deliver their value via their expertise in an opaque market segment in which investors are looking for help, especially given the challenges they face to outperform their benchmarks.”

An opportunity is also likely for existing managers and platforms to work with regulators to further the cause of offering retail investors thoughtful and balanced access to cryptocurrency products. Cerulli believes that the increased volume of U.S. product filings, the listing of multiple Bitcoin ETFs in Canada, and investors being poorly served by the existing stable of products will all serve to nudge regulators toward approving such products. Asset managers working with regulators would be well aligned with investor interests to the extent that it would allow retail investors to access education, guidance, and controls for accessing the exposures. It would also serve to steer retail investors from risky bets and toward modest allocations in cryptoassets, with the potential for some intrinsic value.

Cerulli strongly encourages managers to evaluate the cryptocurrency opportunity and notes that there is both a carrot and a stick argument. “There is a risk to asset managers in not taking a view on the emerging asset class,” says Shapiro. “As established financial services firms will at times make it difficult for investors to access these products, investors will establish relationships with external providers, resulting in brokerages turning away clients while traditional managers appear to struggle to integrate a newer product set.” Asset managers should therefore develop a view on the cryptocurrency ecosystem and deliver value to clients by offering education and guidance.

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