A Growing Number of Institutions are Diversifying with Digital Assets
Institutional investors are increasingly intrigued by digital assets, and companies are listening to their demands. With Coinbase’s CFO explaining they are looking for more institutional clients, and the firm Neuberger Berman offering direct exposure to crypto (as per their SEC Filings), Wall Street is clearly getting braver about entering the market. Are the recent inflation worries to blame for this change in behavior?
Investors Want Exposure to Digital Assets
Neuberger Berman, an asset management firm based in New York and acquired by Lehman Brothers, has revealed through their SEC reports they will get direct exposure to both Bitcoin and Ethereum. This will happen through crypto derivatives such as Bitcoin Futures, ETFs, and trusts. This is the first time the firm has exposed itself to crypto.
However, Neuberger Berman is still treading cautiously. The company rarely speaks about crypto, but in an article in March, the firm noted:
“From our perspective, the Bitcoin phenomenon is worth watching closely. Those with exposure should understand the speculative nature of their investment and—potential windfalls notwithstanding—be prepared to part with almost all their committed capital”.
This is far from the first time an institution has entered the crypto markets. In fact, with Coinbase’s CFO, Alesia Haas, explaining the company is looking to attract high-income clients, it seems crypto is now firmly on the minds of the banking world. In an interview she said:
“The way that we look at it is where the money is in the world… A lot of that money sits in institutional hands, whether that is in pensions or asset managers. So I think we’ll shift into more institutional money as we go forward.”
Coinbase’s quarterly report was just released, and in the firm’s Investor Call, Haas stated they “now have 10% of the top 100 hedge funds measured by AUM”. This is echoed in their Shareholder Letter revealing institutional investors make up $317 billion in trading volume, as opposed to retail, who make up $145 billion. In other words, institutions provide 119% more volume than individuals.
A statistic like this would be unheard of just three years ago when crypto was thought of as purely a retail game or an alternative to traditional investments. Today, institutions have firmly placed themselves at the forefront of the industry, and are increasingly excited to participate.
Inflation May Be Attracting Institutions
One theory for why institutions are now taking crypto seriously is they are using it as a hedge against inflation. In Neuberger Berman’s article mentioned above, they explain:
“Although near-term prospects are limited, there is now widespread concern about an eventual acceleration of inflation. Reasons for this might be large fiscal stimulus/budget deficits, central bank asset purchases, low-to-negative interest rates and historic surges in money supply. Like gold, Bitcoin might be employed to mitigate inflation risk.”
As the months roll on, US financial companies are getting increasingly worried about the state of inflation. While the general consensus from the Fed is that inflation is transitory, some think otherwise.
For instance, Blackrock’s Chief Executive, Larry Fink, has argued this inflation may not be transitory at all, urging the Fed to change their policies. Incidentally, Blackrock has been trading Bitcoin futures.
Even JPMorgan, who for most of the year stuck to the Fed’s narrative, have recently started voicing concerns. Perhaps then, it should come as no surprise they have also begun offering numerous crypto funds.
It certainly looks like institutions are choosing to enter the crypto markets as a means of protecting themselves from the threat of inflation. If this is the case, then we should expect the business world to continue pouring money into the industry throughout the year.
Why do you think institutions are entering the crypto markets at the moment? Let us know in the comments.