Bitwise Asset Management, the US crypto index fund manager, has announced an acquisition of ETC Group, a London-based crypto exchange-traded product issuer and more consolidation is expected in the sector.

On 19 August 2024 Bitwise said in a statement that it was buying ETC Group, a London-based crypto ETP issuer with over $1bn in assets under management, to expand into Europe.  ETC Group adds nine European-listed crypto ETPs to Bitwise’s suite of ETPs, hedge fund solutions and separately managed accounts and takes the combined group’s total assets under management to more than $4.5bn. Bitwise said it plans to expand the existing ETC Group platform in Europe in a strategic manner.

JM Mognetti, chief executive of CoinShares, a European digital asset manager, said the industry has evolved a lot and there are many digital asset managers today.

He said: “In traditional finance, asset managers are getting bigger and bigger due to economies of scale and the same thing is going to happen in digital assets.”

For example, CoinShares acquired Napoleon Asset Management, one of the first ever digital asset managers in 2022. Mognetti spoke on a panel at the SALT Wyoming Blockchain Symposium on 20 August on The Future of Crypto Asset Management: Inside the Industry’s Next Cycle.

Steve Kurz, global head of asset management Galaxy, highlighted on the panel that the digital asset manager announced a collaboration in July with State Street Global Advisors to provide investors with access to the $2.4 trillion digital asset ecosystem through manager-directed strategies.

Anna Paglia, chief business officer at State Street Global Advisors, said in a statement in July: “We believe that the digital assets landscape is so much more than the single crypto components and that crypto native companies are best equipped to understand that ecosystem and its correlation with financial markets.”

Kurz continued that crypto now includes futures, options and ETFs and investors want investment options beyond pure spot exposures. He added: “The ecosystem has expanded so much in just one year that you can start to have active strategies and use derivatives to express views in a portfolio.”

Cynthia Lo Bessette, head of Fidelity Digital Asset Management at Fidelity Investments, said on the panel that the firm has been in the crypto space and providing research for more than a decade. Education about the broader crypto ecosystem, rather than just individual tokens or coins, has been an important part of conversations with investors.

“We need to think about portfolio construction and how to create exposures representing different sectors within this growing ecosystem,“ she added. “From an asset manager standpoint, there is an opportunity for us to add value beyond just access to tokens.”

The managers agreed that the industry has become more focussed on concrete use cases of digital assets as it is important to demonstrate utility to clients.

For example, a manager may not immediately see the added value of a tokenized money market fund, when they have been running their traditional fund for decades. However, they can be educated in only needing to fund a repo trade for eight hours, rather than 24 hours, due to tokenization which saves costs. Or private equity investors can have a more liquid secondary market and more transparent price discovery.

“However, there is no wallet infrastructure that has proliferated across investors that makes it easy for them to see digital and traditional assets side by side, or models for asset allocators to think about how to construct a financial portfolio that includes the broader range of assets available through tokenization ” added Lo Bessette.

The profitability of the asset management business over the next three or four years involves moving into more alternative investments products so hedge funds, liquid token funds, venture funds, fund of funds are all models that are being tested according to Kurz.

“We haven’t had a true asset management industry in crypto,” he said.” It has been a cottage industry until the bitcoin ETF happened.”

The US Securities and Exchange Commission approved the launch of spot bitcoin ETFs, and then spot ether ETFs, this year.

However, in order to complete in this new and complex asset class, asset managers need to invest in infrastructure to be able to invest on-chain and build a data and research platform, which looks very different from traditional finance according to the panellists. Kurz continued that once active management becomes part of the conversation, differentiation is not based purely on fees or total cost of ownership but rather on the strategies being created and the alpha being generated.

“That is when we know we have actually achieved something in terms of crypto becoming an asset class, and crypto asset management becoming a real industry,” he added.