Asset managers are betting big on crypto despite market disruptions

Big-name money managers are moving into digital assets, finding new ways to cash in on investor interest even as trading volumes and prices for bitcoin and other cryptocurrencies have fallen.

FTSE 100-listed Abrdn this week became the latest investment house to take the plunge, buying a stake in regulated UK digital asset exchange Archax. The stake will give the fund manager with £508 billion in assets a board seat and represents a bet that Archax’s technology will underpin how funds, shares and other securities are traded in the future.

Abrdn’s investment, which has not been previously reported, comes as BlackRock, the world’s largest money manager, has not only announced plans for a spot bitcoin trust for institutional investors, but also agreed to connect its Aladdin technology platform to the Coinbase crypto exchange. The latest move should ease the way for the 82,000 investment professionals who use Aladdin to offer clients access to bitcoin.

Meanwhile, Charles Schwab, the US brokerage and investment group, last week launched an exchange-traded fund aimed at giving investors exposure to crypto without actually buying the currencies. And UK wealth manager Schroders bought a stake in digital asset manager Forteus in July.

While Fidelity has offered digital asset custody services for nearly five years and in April added a bitcoin option to its pension offerings, this summer’s activities signal broader acceptance of digital assets, market analysts said.

“Major asset managers are starting to see this as a real investment,” said Chris Brendler, senior analyst at DA Davidson. “I think that’s an important data point in terms of traditional asset management companies embracing what really for years has been almost ridiculed.”

BlackRock founder Larry Fink used to be among the skeptics, saying in 2017 that “bitcoin just shows you how much money laundering demand there is in the world”.

The new digital offerings come after digital assets underwent a brutal market selloff that has cut the total market capitalization of cryptocurrencies from around $3.2 billion in November to less than $1 billion.

But Charley Cooper, CEO of blockchain firm R3 and a former top staffer at the US Commodity Futures Trading Commission, argues that the fact that they went ahead represents a vote of confidence. “Such deals are not put together 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 a plane.”

That is what concerns consumer groups. “Just because the top-tier companies want to make money on something new doesn’t make it a good thing to do,” said Dennis Kelleher, head of Better Markets, a Washington-based investor group. “This volatility would normally be a red flag warning.”

The wide variety of digital asset deals reflects the nascent nature of the asset class and regulatory skepticism about retail products that invest directly in bitcoin. BlackRock has avoided this by offering a private fund to institutional investors, and the Schwab ETF invests in listed companies that aim to profit from providing services to crypto investors or from the underlying blockchain digital ledger technology.

“We know they are a speculative investment, but we have identified it as a long-term trend,” said David Botset, head of equity product management at Charles Schwab’s asset management division.

Abrdn’s stake in Archax is a similar effort. Founded in 2018 by former hedge fund managers Graham Rodford, Andrew Flatt and Matthew Pollard, Archax provides a platform for institutional investors to trade cryptocurrencies and tokenized securities such as fractional shares of companies. Over time, Abrdn hopes to reap “significant income” by giving customers access to their funds in tokenized form, as well as assets that are less easily tradable such as private debt, private equity and buildings, on the stock exchange.

“Our view is that the next disruptive event will be the transition from electronic trading to digital exchanges and trading through digital securities,” said Russell Barlow, global head of alternatives at Abrdn who helped complete the deal. “Being there at the beginning will put us in a very strong position.”

Earlier this week, Abrdn posted a first-half loss of £320m as a flood of customers squeezed assets under administration and receivership.