Big-name fund managers are rushing into digital assets, finding new ways to monetize investor interest even as trading volumes and prices for bitcoin and other cryptocurrencies have plummeted.
Abrdn, listed on the FTSE 100, this week became the latest investment house to take the plunge, buying a stake in a UK-regulated digital asset exchange, Archax. The stake will give the £508bn asset fund manager a seat on the board and represents a bet that Archax’s technology will support the way funds, stocks and other securities will be traded at the future.
Abrdn’s investment, which has not previously been reported, comes as BlackRock, the world’s largest fund manager, not only announced plans for a cash bitcoin trust for institutional investors, but also agreed to tie its Aladdin technology platform to the Coinbase crypto exchange. This latest move should make it easier for the 82,000 investment professionals who use Aladdin to offer clients access to bitcoin.
Meanwhile, Charles Schwab, the US broker and investment group, last week launched an exchange-traded fund aimed at giving investors exposure to crypto without actually buying the currencies. And UK asset manager Schroders took a stake in digital asset manager Forteus in July.
While Fidelity has offered digital asset custodial services for nearly five years and added a bitcoin option to its retirement offerings in April, activity this summer signals broader acceptance of digital assets, analysts said. market.
“The big asset managers are starting to see this as a real investment,” said Chris Brendler, senior research analyst at DA Davidson. “I think that’s a major data point in terms of traditional asset management companies embracing what has been almost derided for years.”
BlackRock founder Larry Fink was among the skeptics, joking in 2017 that “bitcoin shows you how much demand for money laundering exists in the world.”
The new digital offerings come after digital assets suffered a sharp sell-off in the market that reduced the total cryptocurrency market capitalization from around $3.2 billion in November to less than $1 billion.
But Charley Cooper, chief executive of blockchain firm R3 and a former top official at the US Commodity Futures Trading Commission, says the fact that they went ahead represents a vote of confidence. “Deals like this are not done at the last minute. These things have been in the works for months, if not years. . . It’s not like they decided to do it on the fly.
This is what concerns consumer groups. “Just because top companies want to make money off something new doesn’t mean it’s a good thing to do,” said Dennis Kelleher, head of Better Markets, a consumer advocacy group. Washington-based investors. “This volatility would normally be a red flag warning.”
The wide variety of digital asset transactions reflects the nascent nature of the asset class and regulatory skepticism towards retail products that invest directly in bitcoin. BlackRock has avoided this by offering a private fund to institutional investors, and the ETF Schwab invests in listed companies that aim to profit from offering services to crypto investors or the underlying blockchain digital ledger technology.
“We know this is a speculative investment, but we’ve identified it as a long-term trend,” said David Botset, head of equity product management at Charles Schwab.
Abrdn’s stake in Archax is a similar gamble. Founded in 2018 by former hedge fund executives Graham Rodford, Andrew Flatt and Matthew Pollard, Archax provides a platform for institutional investors to trade cryptocurrencies and tokenized securities such as fractional shares in companies. Over time, Abrdn hopes to reap “substantial revenue” by giving clients access to its funds in the form of tokens as well as less easily tradable assets such as private debt, private equity and buildings, in stock exchange.
“Our view is that the next disruptive event will be the shift from e-commerce to digital exchanges and trading via digital securities,” said Russell Barlow, global head of alternatives at Abrn, who was instrumental in finalizing of the agreement. “Being there at the start is going to put us in a very strong position.”
Earlier this week, Abrdn reported a loss of £320m in the first half as an outflow of clients dented its assets under management and administration.