Asset managers are betting heavily on crypto despite the market rot

Big-name asset managers are rushing into digital assets, finding new ways to monetize investor interest even as trading volumes and prices for Bitcoin and other cryptocurrencies have collapsed.

FTSE 100-listed Abrdn this week became the latest investment house to take the plunge by acquiring 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 future trading of funds, shares and other securities.

Abrdn's investment, which was not previously reported, comes as BlackRock, the world's largest asset manager, has not only announced plans for a spot Bitcoin trust for institutional investors but has also agreed to connect its technology platform Aladdin with crypto exchange Coinbase. The latter 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 purchasing the currencies. And British asset manager Schroders bought a stake in digital asset manager Forteus in July.

While Fidelity has been offering digital asset custody services for nearly five years and added a bitcoin option to its retirement offerings in April, this summer's activity signals broader adoption of digital assets, market analysts said.

“Large asset managers are starting to view 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 asset management firms embracing what has really been almost ridiculed for years.”

BlackRock founder Larry Fink was once among the skeptics, quipping in 2017 that “Bitcoin just shows you how big the demand for money laundering is in the world.”

The new digital offerings come after digital assets experienced a brutal market sell-off that reduced the total market capitalization of cryptocurrencies to less than $1 trillion from about $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 have continued 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 on the spur of the moment."

This is what concerns consumer groups. “Just because top companies want to make money on something new doesn’t mean it’s good,” said Dennis Kelleher, head of Better Markets, an investor advocacy group based in Washington. “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 toward 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 profit from offering services to crypto investors or from 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 division.

Abrdn's involvement 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 to trade cryptocurrencies and tokenized securities such as fractional shares of companies. Over time, Abrdn hopes to generate “significant revenue” by giving customers access to its funds in tokenized form, as well as less easily tradable assets such as private debt, private equity and buildings on the stock market.

“In our view, the next disruptive event will be the transition from electronic trading to digital exchanges and digital securities trading,” 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 down assets under management and management.