Ark Invest COO: Wealth managers should be ‘massive targets’ for crypto space

Ark Invest intends to launch more crypto-related offerings, seeking to continue targeting the financial advisor segment that Chief Operating Officer Tom Staudt said has long been ignored by the crypto space.

Firms that have launched crypto separately managed accounts (SMAs) in recent weeks — Ark Invest among them — have cited adviser demand for actively managed crypto strategies that give them ownership of the underlying asset and the ability to better manage taxes.

“Advisors have a very specific set of needs to integrate crypto with their overall book of business — the plumbing, the accounting, the security, the availability,” Staudt told Blockworks in an interview. “I think to a large extent crypto has been focused on direct-to-consumer, and it’s been focused on hedge funds and institutions, and that’s left out this biggest piece of the puzzle.”

About $84 trillion is expected to go primarily from baby boomers to members of Gen X and millennials through 2045, according to Cerulli Associates.

A survey of wealthy Americans published by Bank of America Private Bank on Tuesday found that while investors over the age of 43 say U.S. stocks offer the best opportunity for growth, young investors believe the biggest growth opportunities lie in digital assets. About 47% of the latter investor segment reported holding crypto holdings.

“As consumers themselves become more educated, they’re going to demand this from their advisors, or they’ll take their money elsewhere,” Staudt said.

“Advisors will be able to add greater value to investors when they have the full set of tools, and we are committed to the advisor channel to help them help their clients,” he said.

Continue reading for more excerpts from Blockworks’ Q&A with Staudt.

Blockwork: How have the firm’s attitudes towards crypto and blockchain changed, if at all, amid the crypto downturn?

Steady: In terms of the long-term value, we remain incredibly positive that the opportunity continues to be very large and that it’s in moments of general turmoil when adoption and innovation and technologies like blockchain and crypto built on top of that tend to take disproportionate lots of stock gains.

We see, of course, the use cases coming out of a pandemic for digital assets, for digital money, for stores of value … have been highlighted in a very strong and very abrupt way.

The full use cases are not there, the adoption rates are not there, the awareness is not high. And suddenly the adoption curve slopes upwards very quickly and people make the mistake of thinking that this is the moment the technology came or happened or happened and ignore that the path has been laid for so many years.

We believe we are at or very close to this tipping point … and we want to make sure investors get exposure before the catalyst to really participate in the biggest gains.

Blockwork: Despite its new focus on crypto SMAs, does Ark intend to continue trying to launch a spot bitcoin ETF?

Steady: Although it has obviously been rejected several times, we continue to work with 21Shares and with regulators in the hope that they will make that product available. We think it is a superior product than [bitcoin] futures [ETFs] for a number of reasons.

We see this working well in other jurisdictions and do not believe that the US should lag behind the other countries in terms of innovation due to regulatory arbitrage.

Blockwork: What other crypto-related offerings does Ark want to bring to market?

Steady: We want to bring the same SMAs for advisors … to direct retail consumers as well for those who may not use intermediate channels. We’re still evaluating it, but we certainly have partnerships in the market … for example, the Titan app.

We have also had a private accredited investor fund in the crypto space. We’re working on really increasing the latitude of it to invest in all corners of the crypto asset space, including things like staking and more of the cutting edge pieces.

We’re really trying to hit all the channels…We think the investments we’re making right now are going to be critical to what’s a key pillar of the company for years to come.

Blockwork: How do you see the crypto space being represented in Ark’s new venture fund?

Steady: Blockchain companies and cryptocurrency-related or adjacent [investments] is largely within the scope of the investment universe.

There has certainly been a shakeout in the space – and perhaps justified – but I think in the long term any industry that has seen this kind of shakeout tends to emerge on the other side stronger, more resilient and with better allocated capital.

We’re still in the midst of part of this shakeout—not just in the cryptoassets themselves, but also in the companies participating in the space—so certainly some of those valuations have come down and are very attractive. Others are still full of risk profiles going forward.

We really don’t close our minds too much in relation to [crypto] ecosystem. I think there are parts that naturally add more value from a growth point of view, and that would be where we focus on more than picks and shovels, like mining.

Blockwork: The ARK venture fund currently has Chipper Cash, a fintech that offers access to crypto. Why did that company stand out to the firm?

Steady: We think the growth trajectory in Africa and in some of the emerging markets for apps to really leapfrog what we know as traditional banking has great potential.

What we’ve seen in some of these emerging markets, especially on the African continent, are companies and apps that have been very country-focused. [Chipper Cash] have been able to use the various financial services in the app, be it bank or crypto loans, and they do so in a cross-border way.

Blockwork: How might institutional investors’ attitudes towards crypto evolve as they weigh market conditions, a development like the Ethereum Merge, or the proliferation of crypto hacks?

Steady: The geopolitical backdrop right now is very challenging. The macroeconomic background is very challenging. I think in periods like this there is a tendency, and in some cases understandably so, to really focus on what you are comfortable with and what you know.

You add on top of that that ESG is absolutely at the forefront … within large parts of the institutional space.

I think a lot of gains have been made. Sometimes it’s two steps forward and one back, but I think there should be a lot of confidence built from the fact that as progress has been made, for example the Ethereum merger, you eliminate some of these barriers to entry for very large , sophisticated players, and there will be a tipping point for that, especially when the world settles down.

As [Ark Invest CEO] Cathy [Wood] meaning that it can happen very, very quickly. When you reach a tipping point in usage from a technology standpoint, but also from an asset allocation standpoint, the effects can be very rapid.

This interview has been edited for clarity and brevity.

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