Crypto Asset Management After the Crash: What’s Next?

A familiar analogy: evolution of the Internet and of the crypto ecosystem

The Internet was invented in 1969. At that point, it was essentially useless. About 10 years later, in 1980, a small community found a first use case for it: Scientists used the Internet to send files from one computer to another. Then, another decade later, in the ’90s, the “World Wide Web” was invented. And since the ’90s, it has taken another 30 years to get to today’s innovation and level of adoption. The “killer applications” of the Internet (e.g., Spotify, Netflix, Amazon, social media) have only existed in their current form since roughly 2010, driven in part by the rise of the smartphone. An earlier killer application for example was the email. Now, in 2022, over 30 years after the “birth” of the World Wide Web, innovation has not slowed down, and new business models arise on a regular basis.

Crypto adoption is growing in a manner extremely similar to the growth of the internet in the 90s
Figure 1: Crypto & Internet Adoption Source: World Bank, crypto.com

The institutionalization of crypto investing

Another trend that can already be observed today: More and more financial institutions are getting involved in crypto assets and blockchain. The phrase “yes to blockchain, no to bitcoin” is no longer valid (and never was, in our opinion). Boston Consulting Group estimates that 95% of crypto asset investments bypass traditional approaches to asset management. This already represents a significant lost market share for asset managers, between $0.8 and $1 trillion today [1]. Going forward, this number will increase: If even 1% of assets are shifted out of stocks and bonds and into crypto assets as a new asset class, this would be trillions. Figure 2 shows specifically where capital is flowing: To crypto-native investment platforms; instead of touching traditional asset managers.

95% of Crypto Wealth is managed through crypto native platforms or fintechs, bypassing traditional wealth management.
Figure 2: How crypto wealth is bypassing traditional wealth managers. Source: Boston Consulting Group

Market/segment-covering products like indices and active strategies like funds offer added value

Currently, the bulk of the structured product offerings consists of Exchange Traded Products (ETPs) or Exchange Traded Commodities (ETCs) from various providers, which offer a more or less direct exposure to individual crypto assets. Investors can thus, for a rather high premium of up to 250 basis points, buy Bitcoin, Ethereum and other crypto assets via ETPs/ETCs. Against the backdrop of growing institutional offerings from crypto-native providers (e.g. Coinbase), we expect ETPs/ETCs for individual crypto-assets to soon lose some of their appeal. The costs are too high compared to competing offerings, and what’s more important, only a fraction of the crypto universe is represented in this way.

Three predictions for the future

In summary, our forecast can be condensed to the following three points: First, we are still in the early days of blockchain technology and crypto assets, more or less comparable to the Internet during the 90s. We are still far away from a significant adoption by society but this might come rather faster than slower. Second, we expect a generally increasing institutionalization and professionalization of crypto assets and related investment products in the coming years. Traditional asset managers will increasingly try to cover this segment due to demand of their clients. Third, concerning professional investors, we see a move away from investing in individual crypto assets in the near future. Instead, market-covering solutions will gain in importance (as they do in the equity market) and there will be opportunities to invest in different “industry sectors” of crypto assets via index products. In addition, the crypto fund universe will continue to grow with regard to active, volatility-reducing strategies.

About 21e6 Capital

21e6 Capital is a Swiss investment advisor, connecting professional investors with optimal crypto investment products. We focus on risk management of crypto and digital asset exposure for family offices and institutional investors. Our expertise in crypto asset management stems from a team combining decades of experience in traditional financial services with native and in-depth knowledge in digital assets. 21e6 Capital has analyzed over 1,000 crypto hedge funds across the world and condensed them into a selection that can yield crypto-exposure with minimized downside risk. Our risk management solution, provided by OpenMetrics Solutions, is also trusted by the largest Swiss pension funds. The 21e6 Capital team builds upon strong academic roots with a track record of leading crypto asset and decentralized finance publications and research, ensuring state-of-the-art crypto investment solutions for the family office of the future.

Authors

Maximilian Bruckner is Head of Marketing & Sales bei 21e6 Capital AG. Previsouly, he was engaged as Executive Director of the International Token Standardization Association (ITSA) and was instrumental in creating the world’s largest token database for classification and identification data on tokens. In addition, Maximilian has conducted research at the Frankfurt School Blockchain Center.
LinkedIn | E-Mail: maximilian.bruckner@21e6.io

References

[1] Boston Consulting Group, Global Wealth 2022 https://web-assets.bcg.com/77/3d/6f72e93e4c5ebc95ee093cc91793/bcg-global-wealth-standing-still-is-not-an-option-jun-2022-r.pdf

Crypto Asset Management After the Crash

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21e6 Capital AG

21e6 Capital AG

Our aim is to give professional investors access to the new asset class of “crypto assets”. www.21e6.io