Big-name money managers are pushing into digital assets and finding new ways to monetize investor interest even as trading volumes and prices for bitcoin and other cryptocurrencies have plummeted.
FTSE 100-listed Abrdn this week became the latest investment house to take the plunge by buying a stake in Archax, a regulated UK digital asset exchange. The stake will give the £508bn fund manager a seat on the board 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 was not previously reported, comes as BlackRock, the world’s largest wealth manager, has not only announced plans for a spot bitcoin trust for institutional investors, but has also agreed to merge its Aladdin technology platform with crypto exchange Coinbase associate. The latter move should ease the path for the 82,000 investment professionals who use Aladdin to provide clients with access to Bitcoin.
Meanwhile, Charles Schwab, the US brokerage and investment group, launched an exchange-traded fund last week that aims to give investors exposure to crypto without actually buying the currencies. And British wealth manager Schroders bought a stake in digital wealth manager Forteus in July.
While Fidelity has been offering custody services for digital assets for nearly five years and added a Bitcoin option to its retirement offerings in April, activity this summer signals broader adoption of digital assets, market analysts said.
“Big money managers are starting to look at this as a real investment,” said Chris Brendler, senior research analyst at DA Davidson. “I think it’s an important data point in terms of traditional wealth management firms embracing what has really been almost ridiculed for years.”
BlackRock founder Larry Fink was a former skeptic, quipping in 2017 that “Bitcoin just shows you how big a need there is for money laundering in the world.”
The new digital offerings come after digital assets experienced a brutal market sell-off that took the total cryptocurrency market cap down to less than $1 trillion from around $3.2 trillion in November.
But Charley Cooper, chief executive of blockchain firm R3 and a former top official at the US Commodity Futures Trading Commission, argues that the fact that they’ve moved on is a vote of confidence. “Deals like this aren’t thrown 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 spontaneously.”
This is what concerns consumer groups. “Just because top companies want to make money from something new doesn’t make it good,” said Dennis Kelleher, head of Better Markets, a Washington-based investor advocacy group. “This volatility would normally be a red flag warning.”
The wide variety of digital asset deals reflects the emerging 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 publicly traded companies that aim to capitalize on offering services to crypto investors or on the underlying blockchain digital ledger technology.
“We know it’s a speculative investment, but we’ve identified it as a long-term trend,” said David Botset, head of equity product management in Charles Schwab’s wealth management arm.
Abrdn’s stake in Archax is a similar bet. Founded in 2018 by former hedge fund managers Graham Rodford, Andrew Flatt and Matthew Pollard, Archax provides institutional investors with a platform for trading cryptocurrencies and tokenized securities such as fractions of shares of companies. Over time, Abrdn hopes to generate “significant revenue” by giving clients access to its funds in tokenized form, as well as less readily tradable assets such as private debt, private equity, and stock market buildings.
“In our view, the next disruptive event will be the transition from electronic trading to digital exchanges and trading in digital securities,” said Russell Barlow, global head of alternatives at Abrdn, who was instrumental in closing the deal. “Being there at the beginning will put us in a really strong position.”
Earlier this week, Abrdn posted a first-half loss of £320m as an outflow of clients pushed assets under management and under management down.