It seems that everyone and their mother are diving into the rapidly expanding cryptocurrency market. Boutique banks, hedge funds, asset managers, and Family Offices (a term that never fails to bring a smile to my face) are all eager to find their footing in this dynamic terrain. Ironically, these same institutions dismissed it as a baseless market years ago.
However, traditional investors devise plans to amass crypto fortunes as acceptance and regulation advances. They’re leveraging their impressive client lists and promising extraordinary returns led by internal expertise. Yet, they encounter a significant roadblock: the current surge in demand for talent well-versed in crypto circles is akin to searching for ‘WEB3 Developers’. Experienced, knowledgeable, proven crypto traders are scarce; most good ones have already been hired. Moreover, most harbor ‘anti-corporation’ sentiments and value their independence.
Adding to the complexity, numerous novice crypto investors self-proclaim themselves as ‘TRADERS.’ This opens up potential pitfalls: the possibility of hiring the wrong caliber of talent can lead to unforeseen consequences. As we navigate this era of crypto proliferation, it’s critical to approach carefully, ensuring that the allure of new frontiers is consistent with the necessity of informed decision-making.
Even though comprehensive regulatory frameworks have yet to materialize fully, investment vehicles such as the forthcoming Bitcoin ETF and growing interest in GBTC present compelling opportunities for early entry into this thriving market. I say early investors, but some of us have been here for years. Many peers in my industry scoffed when I first ventured into this ‘crypto mumbo jumbo business.’ Those same people are now hiring crypto traders, which I find amusing and gratifying.
While I’m more correlated to the commodities industry, I’ve been exploring the ‘mumbo jumbo business’ since 2017. From initial questions about market knowledge to present-day offers to join new desks, my journey has been engaging. However, integrating the Commodities industry into crypto remains a vision, and tokenization is still the answer. My quest for this ‘ComTokenTopia’ (CTT), a term I coined, continues. Please dont bother researching that term, as I made it up.
Despite last year’s market volatility leading to notable failures and a subsequent downturn, crypto assets have carved out a robust foothold as an individual investment class. Instead of being deterred by these turbulent times, traditional finance seems increasingly intriguing. This resilience in digital assets cannot be understated; it testifies to the strength and potential of these transformative instruments, even amid a bear market. Hence, the rise of Asset Managers, Hedge Funds, and Family Offices stepping into the ring is unsurprising.
Crypto asset management has emerged as an attractive proposition for investors wanting a share of the cryptocurrency pie without handling the intricacies of direct ownership and custody. In April, the total Assets Under Management (AUM) for crypto asset investment products rose by 7%, amounting to $33.6 billion. This growth trend underlines the burgeoning faith in the sector.
Holding the lion’s share of AUM, Grayscale remains the world’s largest crypto asset manager, accounting for two-thirds of the market.
Before discussing Hedge Fund Managers, it’s worth noting the role of Family Offices within this space. Although they comprise a tiny fraction of family offices’ portfolios, their adoption is rising. Yet, the bear market has fostered negative sentiment, with a significant portion expressing disinterest in crypto in 2023. This will change once they can find the right talent. They should consider reaching out to me; I could help.
Hedge Fund Masters, however, are quietly dominating this space, making discreet hires to maintain a competitive edge. Despite stumbling blocks like the collapse of Three Arrow Capital in 2022, hedge funds’ AUM has recorded a remarkable growth of 435% since 2018, reaching $54.6 billion. Numeus predicts further growth as talent continues to migrate from traditional finance to crypto, fostering the development and application of diverse investment strategies.
Despite the substantial challenges the crypto sphere still faces, crypto assets are increasingly being utilized as diversification tools, stakes in blockchain technology, or instruments to game the markets. The banking crisis has even led some investors to pivot from regional banks to Bitcoin. Although crypto assets still represent a relatively small part of traditional investment, their increasing integration within the broader financial ecosystem is undeniable.
The preferred choice of institutional investors venturing into crypto remains Bitcoin, the undeniable messiah of crypto assets. Among crypto asset managers, 72% of AUM is directed toward BTC-based products. Ethereum-based products trail behind at 23.4%, albeit with a slight uptick in market share following the successful Shanghai upgrade.
While I’m not a big fan of ETFs, I foresee a potential surge in the crypto investment market once the regulatory ambiguity clears. Spot crypto ETFs are still uncommon: they’re yet to receive approval in the US (Grayscale is in a legal dispute with the SEC over the prospect of registration), while the European Union only permits crypto ETNs (exchange-traded notes). Should Grayscale prevail against the SEC, it could pave the way for crypto ETFs in the US – a development eagerly awaited by 74% of institutional investors, according to a recent survey by Brown Brothers Harriman, a private US investment bank.
Just as everyone and their mother are getting into the cryptocurrency game, it’s clear that only those with solid knowledge and an understanding of this ‘crypto mumbo jumbo business’ will successfully navigate its volatile seas.