Introduction to Crypto Investment for Traditional Asset Managers
The current trend in the digital currency ecosystem is causing many traditional investors, such as Registered Investment Advisors (RIAs) and family offices, to reconsider their involvement in the industry. However, the inherent conservatism of these mainstream investors is often at odds with the volatility that cryptocurrencies are currently experiencing. As a result, many asset managers are willing to invest funds in cryptocurrencies, which could trigger multiple bets on crypto beta exposures while missing out on the most promising alpha opportunities.
Macropolitical Measures and Crypto Market Attractiveness
In its early days, crypto was an asset class chosen only by retail investors. However, a significant shift has taken place over the past five years, with companies like Strategy Inc. pioneering corporate acquisitions. The benefits to Strategy in terms of unrealized revenue and inventory have now forced other companies to adopt Bitcoin (BTC). A major catalyst observed in recent years is the growing government support for the industry, with regions like the United States and various European countries pioneering a new shift in mainstream crypto adoption.
Under President Donald Trump’s administration, there is a new pivot that can bring trillions to the market. Notably, the government has allowed Bitcoin to be included in 401(k) portfolios. For asset managers who have sidelined Bitcoin in the past, these guidelines are forcing them to rethink. Despite the search for “how,” these companies are likely to have errors in their allocations, costing customers potential returns and innovation commitments.
Driving Factors for Traditional Allocation in Crypto
Despite the current decline, the price of Bitcoin is up over 78% year-on-year, contrasting with the S&P 500 Index’s 15% or the Dow Jones Industrial Average’s 10.65%. The new group of asset managers are betting on crypto for several reasons, including:
- Customer demand and competitive pressure. The new generation of investors, including Millennials and Gen Z, are more data-driven and risk-oriented. If asset managers refuse to innovate, they could lose these clients if they don’t provide what they need.
- The political green light. Since taking office in January, President Trump has signed a series of executive orders to show his support for the sector. Just like the US, other countries are also reducing regulatory oversight and political risks surrounding the crypto market in general.
- The institutional infrastructure is intact. Traditional asset managers have to meet high due diligence standards to remain in the market. So far, major industry players such as Coinbase and Bakkt are beginning to develop infrastructure to support these new business needs. It’s a trend that’s accelerating, and a big part of it is due to platforms like Universal Exchange (UEX).
- Performance and narrative. Bitcoin and crypto, in general, will remain attractive to asset managers in TradFi due to their outstanding performance. As previously mentioned, BTC outperforms traditional equity benchmarks and remains the best-performing asset over the past decade.
Potential Missteps in Crypto Allocation
To gain exposure to Bitcoin, the simplest approach, based on what is known to asset managers, is to use spot ETF products. However, some managers may avoid direct exposure that would allow them to allocate funds directly to Bitcoin. Choosing ETFs over self-custody could be a costly move, as ETF issuers are known to charge high fees for holding an asset that an investor could hold themselves, thereby losing value to investors.
Another important factor is the associated counterparty risk. Investors bear the risks of the associated fund that distributes their assets. Many unforeseen situations could arise, making it essential for asset managers to carefully consider their allocation strategies.
A Prime Example of Crypto Allocation
A model investment portfolio will include direct ownership of core crypto holdings. However, for larger Bitcoin and Ethereum (ETH) allocations, it is best to use the services of regulated custodians. This can help reduce high fees. A good crypto portfolio allocation takes into account all major high-growth sectors of the industry.
A diversified portfolio can allocate 60% to 70% of holdings to Bitcoin as a core store of value. Additionally, asset managers with a more growth-oriented focus can invest 30-40% in Ethereum and/or other user-based L1 protocols. A slightly higher risk venture portfolio may also contain 0-5% DeFi blue chips.
Important Note for Asset Managers
Since it is a very promising industry, the chances of asset managers entering the market with FOMO are high. This is because they usually do not react to the trend out of conviction, but rather to compete with their competitors. Since customer demand is legitimate, asset managers may have no choice but to bet on crypto. Regardless of the motive, a properly selected asset base can make the difference between new entrants and established crypto investment firms.
Ignacio Aguirre Franco, a marketing executive with over fifteen years of experience in technology, fintech, and blockchain, emphasizes the importance of a crypto-native strategy for asset managers. By combining technical prowess with strategic vision, asset managers can develop marketing engines that deliver real, sustainable impact.
Read the original article at https://crypto.news/there-is-antidote-to-your-wealth-managers-crypto-fomo/
