The Bright Future of Crypto Asset Management

Funds that specialize in Bitcoin and other digital tokens have long remained a niche within the vast investment product industry. However, according to analysts at Bernstein Research, this is about to change rapidly.

Led by Gautam Chhugani, the analysts anticipate that the crypto asset management industry will experience exponential growth over the next five years, with assets under management reaching anywhere from $500 billion to $650 billion. To put this into perspective, the current figure stands at approximately $50 billion.

The analysts' positive outlook, outlined in a note on Monday, is driven by several key factors. The first factor is the potential approval of a spot Bitcoin exchange-traded fund (ETF). In a recent ruling, a court determined that the Securities and Exchange Commission (SEC) had made an error when it rejected Grayscale Investments' request to convert the Grayscale Bitcoin Trust, with a ticker symbol of GBTC, into an ETF.

The SEC has until mid-October to challenge this ruling. Furthermore, around the same time, the agency will need to make a decision on whether to approve or delay applications from other fund companies seeking to introduce their own Bitcoin products.

Assuming the SEC stops its resistance, these Bitcoin funds could enter the market as early as next year. The Bernstein team predicts that ETFs will capture roughly 10% of the market capitalizations of both Bitcoin and Ether, the second-largest digital token.

The analysts are confident that crypto financial adoption follows hype cycles, and they anticipate a significant surge in adoption, with 2024 serving as a watershed year for ETF approval.

With the industry poised for tremendous growth, it seems that mainstream acceptance and integration of digital assets are on the horizon.

Signs of Institutional Interest in Crypto

Recently, there have been indications that certain institutions are becoming more receptive to cryptocurrency, despite a decline in retail traders on platforms like Coinbase Global. Notably, companies such as BlackRock, Fidelity, WisdomTree, and Invesco, alongside Grayscale, have filed applications to launch Bitcoin exchange-traded funds (ETFs). Additionally, some fund companies are seeking to introduce products that will hold spot Ether or Ethereum-linked futures.

Not only are investment firms exploring digital assets, but payment giants like PayPal Holdings and Visa have also entered the space. They have either launched their own tokens or announced partnerships aimed at strengthening their involvement in the crypto industry.

Nevertheless, the progress of institutional adoption is hindered by regulatory challenges. While the Securities and Exchange Commission (SEC) Chair, Gary Gensler, continues to assert that the crypto industry is plagued by fraud and non-compliance with securities laws, the agency has faced setbacks in court battles. In fact, the SEC sued Coinbase in June for allegedly operating as an unregistered securities exchange, a claim which Coinbase has rejected.

The lack of regulatory clarity is compounded by the limited interest in the Senate to address these concerns. Although there is a possibility of bills altering crypto industry regulations passing in the House of Representatives this year, progress in the Senate has been sluggish.

Despite the absence of comprehensive legislation, analysts at Bernstein predict a decline in enforcement actions. They believe that the worst of the regulatory backlash has subsided and expect further clarification to arise from the ongoing Coinbase case.