Institutional Crypto Adoption in 2022

Published in

Coinmonks

9 min readMar 15, 2022

Introduction

A new economy is forming. Its thesis is decentralization, and it uses blockchain as a method. Cryptocurrencies are a crucial part of the Web3 journey since they provide as an incentive structure and a mechanism of transferring value.

The widespread acceptance of cryptocurrencies by financial institutions would help to consolidate and legitimize the Web3 economy in numerous ways. With billions of dollars available for investment, major portfolio allocation to cryptocurrencies would likely represent a big value inflection moment for many digital assets.

So, where do we stand at this point in the journey?

Major Asset Managers

BlackRock — $10 Trillion AUM

What: ETF, Crypto Trading

Reported: Q1 2022

The world’s largest asset management filed to create a blockchain-related exchange-traded fund in January. The iShares Blockchain and Tech ETF will track companies in the blockchain and crypto sectors, such as crypto miners, crypto exchanges, and businesses focusing on blockchain technology development.

There were reports in mid-February that BlackRock was going to provide crypto trading to its clients via ‘Aladdin’, the integrated investment management platform.

Crypto Market Impact: Potentially HIGH

The iShares Blockchain and Tech ETF from BlackRock is unlikely to have a significant influence on crypto markets because all institutional money going into such a fund will not be utilized to directly acquire cryptocurrencies. An ETF of this sort is a form of fund that holds several assets, in this case equities of firms operating in the crypto and blockchain sectors. However, it will provide a clear indicator of investors’ interest in that area, as well as industry development and ROI. Given the positive investor sentiment (and regulations), BlackRock may take the next step and establish a crypto-specific fund that will invest directly in cryptocurrencies.

What will have an immediate impact is BlackRock’s decision to provide crypto trading to its clients through ‘Aladdin’. ‘Aladdin’, a financial software tool from BlackRock, is a central processing system for investment managers all around the world. It is now widely utilized in the financial industry and manages at least $21 trillion in assets. Customers include Apple, Microsoft, Google, half of the top ten insurers, sovereign wealth funds such as Japan’s $1.5 trillion government pension fund, and major fund managers such as Vanguard.

Charles Schwab — $7.5 Trillion AUM

What: ETF

Reported: Q1 2022

Charles Schwab has filed to create an index-tracking ETF that would provide exposure to firms active in digital assets as well as commercial operations related to blockchain technology. According to their regulatory filing, Schwab Crypto Economy ETF intends to invest at least 80% of their net assets in equities from the Schwab Crypto Economy Index.

Crypto Market Impact: LOW

Schwab Crypto ETF, like BlackRock, would not invest in digital assets directly, therefore the influence on crypto markets would be negligible.

Fidelity International - $812 Billion AUM & Fidelity Canada - $145 Billion

What: Physically Backed Bitcoin Funds

Reported: Q4 2021/Q1 2022

Fidelity International ($812 billion AUM) debuted a physical Bitcoin exchange traded product, FBTC, in February. It is 100 percent physically backed by Bitcoin stored in custody provided by Fidelity Digital Assets and trades on European platforms. Professional investors within several European countries can access the fund.

Fidelity Canada ($145 billion AUM) has introduced Fidelity Advantage Bitcoin, which invests directly in bitcoin while also providing the security of Fidelity’s in-house storage capabilities.

Crypto Market Impact: LOW (Short Term) MEDIUM to HIGH (Long Term)

The Physical Bitcoin ETP from Fidelity International is exclusively offered to professional asset managers and institutional customers in only some European countries, including Germany, Denmark, Finland, Italy, Luxembourg, Norway, Sweden, Switzerland, the Netherlands, and the United Kingdom. The general public is not permitted to invest in the fund.

Fidelity’s Advantage Bitcoin is only available through Canadian brokerage platforms that enable stock and ETF trading, is not available outside of Canada, and only has slightly more than $32 million in assets as of March 2022.

Side Note: the giant Fidelity Investments, which has $4.2 Trillion under management, has been denied by the US Securities and Exchange Commission for a spot bitcoin exchange-traded fund.

Invesco Europe — $500 Billion AUM

What: Physically Backed Bitcoin Fund

Reported: Q4 2021

Invesco has launched a Physical Bitcoin ETP (BTIC) which is 100% backed by holdings in the underlying digital assets. Bitcoins are stored using institutional-grade custody solutions provided by Zodia Custody, a UK-based digital asset custodian who is registered with the FCA.

Crypto Market Impact: LOW (Short Term) MEDIUM (Long Term)

The Invesco Bitcoin ETP is available to trade on Swiss and German Exchanges and is only available to investment professionals. Bitcoin ETP has $118 Million in assets as of March 2022. Invesco US with $1.61 Trillion AUM has been denied by the US Securities and Exchange Commission for a spot bitcoin exchange-traded fund.

State Street — $4.1 Trillion AUM

What: Custody

Reported: Q4 2021

State Street has partnered with crypto infrastructure provider “Copper” to launch institutional-grade digital asset custody for its clients. Upon regulatory approval, the firm will offer custody services for some of the most “active” cryptocurrencies including Bitcoin, Ethereum, Cardano, Solana, and Polkadot.

Crypto Market Impact: LOW

The firm will only offer its infrastructure and experience to assist clients’ transition in the new digital economy by offering crypto custody services with no trading support or a spot crypto ETF.

Goldman Sachs — $2.1 trillion AUM

What: Ethereum Fund, Crypto Options

Reported: Q1 2022

According to the amended Form D filing, the “Galaxy Institutional Ethereum Fund” launched in February 2021 with a minimum initial investment of $250,000 for institutional players.

Recently in March 2022, Bloomberg reported that Goldman Sachs is exploring to offer over-the-counter bilateral options and futures trading in Bitcoin and Ether.

Crypto Market Impact: MEDIUM (Short Term) HIGH (Long Term)

According to SEC filings for Goldman Sachs’ “Galaxy Institutional Ethereum Fund,” 28 clients were enrolled in the fund at the time of the filing, with invested assets totaling more than $50 million. With more regulatory clarity and crypto adoption, the Ethereum fund might draw far more investment from Goldman Sachs’ clients.

Also, the bilateral options will allow trades to be customized so that crypto holders such as hedge funds can hedge risks.

JP Morgan Chase — $3.1 Trillion AUM

What: Crypto Funds Client Access

Reported: Q3 2021

JP Morgan Chase opened up access to crypto funds. Private clients of the bank will now have access to numerous crypto funds offered by Grayscale, Osprey, and NYDIG.

Crypto Market Impact: HIGH (Long Term)

These funds include the NYDIG Bitcoin fund, the Grayscale Bitcoin Trust, the Bitcoin Cash Trust, the Ethereum Trust and the Ethereum Classic Trust, as well as the Osprey Bitcoin Trust. All of these funds acquire cryptocurrency directly, resulting in direct demand. However, there is still evidence of the bank’s hesitation toward cryptocurrencies, since JP Morgan advisors are not permitted to suggest the Grayscale or Osprey funds, but can only respond to customer requests.

BNY Mellon — $2.4 Trillion AUM

What: Crypto Custody

Reported: Q1 2022

BNY Mellon are setting up a new unit dedicated to providing its clients with ‘an integrated service’ for digital assets, which would cover classic cryptocurrencies and could be extended to stablecoins. Upon launch, BNY customers will be able to store Bitcoin and Ether in its crypto wallets which are powered by Fireblocks technology.

Crypto Market Impact: LOW

BNY Mellon will only provide custody that allows traditional and digital assets to be interoperable. At this time, no trading, ETFs, or funds are available for customers to invest in cryptocurrencies through BNY Mellon.

Summary

Over $40 trillion is managed by the top ten asset managers. When we analyze where they all stand in terms of crypto adoption, especially delivering products that would have a significant influence on the crypto markets, such as trading, spot ETFs, establishing managed funds, advising, and so on, we discover only a few options.

Although, most asset managers have provided custody and non-physical ETFs, these have no direct influence on crypto markets. The trend, though, is certainly shifting, albeit slowly. JP Morgan and Goldman Sachs have slowly introduced cryptocurrency funds for its clients. Even though Fidelity Investments ($4.2 Trillion AUM) and Invesco ($1.61 Trillion AUM) have both been denied by the US Securities and Exchange Commission for a spot bitcoin exchange-traded fund, their smaller subsidies in Europe and Canada have managed to launch spot crypto ETFs.

BlackRock’s decision to provide crypto trading to its clients via ‘Aladdin’ has yet to be confirmed, but it has the potential to be significant, given that Aladdin’s users have $21 trillion in assets under management on the platform.

Several other major institutions, like Vanguard and Amundi, which oversee $7.2 and $2.18 trillion in assets respectively, have indicated that crypto assets are extremely speculative and have kept out of the market for the time being.

On the other hand, some others are considering to invest or looking for an indirect exposure. PIMCO with $2.2 trillion in assets under management, has stated that it intends to invest in cryptocurrency, and Capital Group, with $2.6 trillion in assets under management, has purchased Microstrategy’s company stock, which is one of the largest holders of Bitcoin on its balance sheet, giving Capital Group an indirect exposure.

So, what does all of this mean? This is, in our perspective, really excellent news. The market for these options is still in its infancy, and has been dominated by crypto-native firms such as Genesis Global Trading, Galaxy Digital, and GSR. Large Wall Street banks still aren’t active in the crypto spot market, handicapped by regulatory uncertainty and internal compliance procedures. In the United States, no major asset manager has yet created a spot crypto ETF, nor is there a crypto index fund available for the general public to invest in, akin to SPDR or Schwab’s S&P 500.

The demand is clearly there, as the survey from Fidelity Digital Assets has revealed that seven in ten institutional investors from around the world, including advisors, family offices, pensions, hedge funds, and endowments, plan to buy or invest in digital assets within the next five years. Major institutional adoption is matter of time, and patience.

DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.

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Institutional Crypto Adoption in 2022

Introduction

Major Asset Managers

Summary

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Written by Wheatstones