Assets under management in crypto ETPs are likely to grow beyond USD120 billion by 2028, even without large crypto price increases, fuelled by increasing institutional demand and changes in US policy, according to a new report by research provider Bloomberg Intelligence (BI).
The report finds that regulatory approval is a key catalyst for a spot Bitcoin ETF by the end of 2023. If this happens, there are likely to be 10s of billions in assets added to crypto funds given such a move would signal regulatory clarity and approval of the digital assets space, the firm says. Currently US advisers control about USD26 trillion, with only a small minority of those advisers having exposure to crypto and the majority who do, allocate only 1 per cent or less of their clients’ portfolios.
With the industry moving from a niche offering to a more established investment product, BI forecasts that exchanges such as Coinbase and FTX will see strong volume and revenue grow, while the potential for the US to launch a central bank digital currency in the coming years remains a distinct possibility.
According to BI’s report, institutions taking crypto positions rose to 52 per cent last year, up from 33 per cent in 2019, bringing further liquidity to the sector. Furthermore, growth in the number of broker-dealers in the US offering crypto products continues to support retail investor involvement in the sector, with convenience and simplicity creating a compelling incentive for entry-level investors.
Julie Chariell, Senior Fintech Industry Analyst at Bloomberg Intelligence says: “Bitcoin turns 13 years old in 2022, barrelling into its teenage years marked by greater independence in the form of decentralisation, some rebelliousness, as seen in its volatility, and formation of identity as in its store of value or medium of exchange. With some discipline, through regulation, crypto has the potential to achieve acceptance by peers in the shape of mainstream adoption.”
BI estimates there are at least 107 cryptocurrency funds with 119 share classes listed on public exchanges globally, including ETFs, CEFs, mutual funds and trusts. These launches and this fund growth show that fund issuers see massive potential for asset growth in the crypto space, believes BI. However, with no spot option in the US, investors seeking crypto exposure are left with futures ETFs that incur roll costs and trusts that trade away from their underlying value.
There are 15 blockchain- or crypto-themed equity ETFs currently trading on US exchanges, up from just four in March 2021, while sector assets have levelled off at USD1.9 billion. BI expects the number of funds to increase slightly alongside assets in 2022 as the SEC withholds approval of spot bitcoin ETFs.
James Seyffart, ETF Strategist at Bloomberg Intelligence says: “The number of publicly listed cryptocurrency funds – mostly tracking Bitcoin and Ethereum – should sustain the rapid growth of the past two years through 2022 and into 2023 as more countries allow the launch of spot products and regulators get more comfortable with digital assets.
“In the US, regulatory concern is the top reason advisers haven’t invested in crypto assets. We believe a Bitcoin ETF approval would alleviate these concerns. The SEC has regulated the crypto industry with enforcement rather than offering regulatory clarity thus far but the industry is likely to get significantly increased clarity over the coming years from Biden’s crypto executive order and from SEC rule proposal expansions. All of which will cause the growth of crypto fund assets.”
Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence says: “There’s little doubt Bitcoin is the most fluid, 24/7 global trading vehicle in history and well on its way to becoming digital collateral in a world going that way.”