Smaller Firms Scoop up Crypto Demand as Large Fund Providers Still Unconvinced

Smaller, more specialized firms have been meeting retail investors’ growing demands for cryptocurrency exposure, yet major funds remain wary.

In spite of the recent upheavals in the cryptocurrency markets, virtual asset investment products saw an average of $66.5 million in weekly inflows over the course of May, according to data from CryptoCompare. These assets, such as the Grayscale Bitcoin Trust and exchange-traded products, enable investors an entry into crypto products by providing exposure without having to hold the tokens directly.

Specialized firms benefiting

Managers offering these products have found a key client base in the do-it-yourself investors, rather than institutional clients. “Crypto asset management remains a very, very retail-driven allocation,” said Jean-Marie Mognetti, chief executive of CoinShares. The Jersey-based company offers a number of crypto exchange-traded products.

Many larger firms may also lack the technical expertise necessary to confidently deal with crypto assets. “The level of technical detail you need is quite high,” said Ophelia Snyder, co-founder, and president of 21 Shares. “That reality disproportionately benefits specialized firms.” However, the co-founder of the Swiss-based crypto funds group believes acceptance of digital assets has already come a long way. “When we launched the product four years ago, no one would touch it,” Snyder recalls.

Institutional skepticism

Yet, as smaller firms meet individual needs, the traditional fund providers for institutional clients, such as BlackRock’s iShares and Vanguard still remain unconvinced about crypto. Recent volatility has underscored a longstanding belief that crypto is too volatile to be a suitable fund investment

Taimur Hyat, chief operating officer of $1.4 trillion asset manager PGIM Group, made a discerning inquiry into cryptocurrencies. “With a market cap well over $1 trillion, cryptocurrencies have grown too big to ignore,” he said in a recent report. “For institutional investors, they offer the allure of extraordinary and diversified returns in a market that is now of sufficient size and liquidity for meaningful institutional positions.”

Ultimately, PGIM had concluded that digital assets were hopeless as investment products. “Despite the hype, we find little evidence that cryptocurrencies offer any meaningful opportunities for institutional investors,” Hyat explained.

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