How Crypto ETP Popularity Shows Institutions Preparing for the Next Bull Run

Exchange-traded products (ETPs) based on cryptocurrencies continue to gain ground despite a general slowdown in the market over the past year.

Crypto ETPs have seen global net inflows of $379 million so far this year, according to data from ETF fintech firm TrackInsight.

Rather than simply investing in stocks linked to cryptocurrencies, these crypto-ETPs give investors either direct exposure to them or through futures contracts.

The pent-up demand is expected to explode

According to Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, one reason for the popularity of these products is the flexibility they give institutional investors as they approach the nascent and volatile asset class.

Despite the growing demand from customers to tap into the crypto ecosystem, many are confused by the underlying technology and therefore require professional services, but most institutions have regulatory hurdles that prevent them from offering direct access.

Accordingly, Lamont believes that the continued popularity of these products is the result of “tremendous pent-up demand.” Data from TrackInsight details the launch of 39 crypto ETPs in the first seven months of this year, on pace with the 68 recorded last year.

To meet this demand, some of the largest financial institutions launched their own crypto-related offerings this year. Despite disparaging comments about crypto from its CEO in recent years, the world’s largest asset manager, BlackRock, announced plans for a spot bitcoin private trust in August, in partnership with US cryptocurrency exchange Coinbase.

In addition to launching its own crypto-related ETPs this spring, Fidelity Investments, America’s largest pension provider, also became the first to offer its clients Bitcoin in their 401(k) portfolios, where they reported seeing significant interest. .

Anticipating the next crypto bull run

Somewhat surprised by the patience of these asset managers to “let the pendulum swing back toward the long-term performance of these strategies,” Todd Rosenbluth, head of research at ETF research firm VettaFi, added that the frenzy of launches this year has largely been to claim relatively “virgin soil”.

Since there is inherently a limited amount of differentiation between crypto-ETPs, long-term success may be largely dependent on early recognition and brand awareness.

This is especially the case, since most investors now believe that cryptocurrencies will continue to persist in some form, according to Lamont. Accordingly, Lamont believes that these products are “launching in anticipation of the next crypto bull run.”

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