Ark Invest COO: Wealth Managers Should Be ‘Massive Target’ for Crypto Space

Ark Invest intends to launch more crypto-related offerings, and is seeking to continue targeting the financial advisor segment that Chief Operating Officer Tom Staudt said has long been ignored by the crypto space.

Firms launching crypto separately managed accounts (SMAs) in recent weeks — Ark Invest among them — have cited advisors’ demand for actively managed crypto strategies that offer them ownership of the underlying asset and the ability to better manage taxes.

“Advisors have a very specific set of needs in order to integrate crypto with their overall book of business — the plumbing, the accounting, the security, the accessibility,” Staudt told Blockworks in an interview. “I think largely crypto has focused on direct-to-consumer, and it has been focused on hedge funds and institutions, and it’s left out kind of this largest part of the puzzle.”

Roughly $84 trillion is expected to pass primarily from baby boomers to members of Gen X and millennials through 2045, according to Cerulli Associates.

A survey of wealthy Americans published by Bank of America Private Bank Tuesday found that while investors over the age of 43 say US equities offer the best opportunity for growth, young investors think the greatest growth opportunities lie in digital assets. Roughly 47% of the latter investor segment reported having crypto holdings.

“As consumers themselves become more educated, they’re going to demand this out of their advisors or else they’ll take their money elsewhere,” Staudt said.

“Advisors are going to be able to add greater value to investors when they have the full set of tools, and we are committed to the advisor channel to help them help their clients,” he said.

Keep reading for more excerpts from Blockworks’ Q&A with Staudt.

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Blockworks: How has the firm’s attitudes toward crypto and blockchain changed, if at all, amid the crypto downturn?  

Staudt: Relative to the long-term value, we remain incredibly bullish that the opportunity continues to be very large and that it is in moments of general turmoil when adoption and innovation and technology such as the blockchain and crypto built on top of it tend to take disproportionate share gains.

We see, of course, the use cases coming out of a pandemic for digital assets, for digital money, for stores of value…have been highlighted in a very stark and a very abrupt way. 

The full use cases aren’t present, the adoption rates aren’t there, the awareness is not high. And then suddenly the adoption curve slopes upward very quickly and people make the mistake of thinking that’s the moment the technology came or happened or occurred and ignore that the track’s been laid for so many years.

We think we’re at or very imminently near that inflection point…and we want to make sure investors get exposure before the catalyst to really participate in those greatest gains.

Blockworks: Despite its new focus on crypto SMAs, does Ark intend to continue trying to launch a spot bitcoin ETF? 

Staudt: While that’s obviously been rejected multiple times, we continue to work with 21Shares and with regulators in the hope that they will make that product available. We think it’s a superior product to [bitcoin] futures [ETFs] for a number of reasons.

We see this working well in other jurisdictions and don’t think that the US should lag behind those other countries in terms of innovation due to regulatory arbitrage.

Blockworks: What other crypto-related offerings is Ark looking to bring to market? 

Staudt: We’re looking to bring those same SMAs for advisors…to direct retail consumers as well for those who may not use intermediary channels. We’re still evaluating that, but certainly we have partnerships in the market…such as the Titan app.

We have also had a private accredited investor fund in the crypto space. We’re working to really increase the latitude allowed to it to invest in all corners of the cryptoasset space, including things like staking and more of the leading-edge parts.  

We’re really trying to hit all of the channels…We think the investments we’re making right now are going to be critical to what is a key leg of the firm for years to come.

Blockworks: How do you see the crypto space being represented in Ark’s new venture fund? 

Staudt: Blockchain companies and cryptocurrency-related or adjacent [investments] are very much within the scope of the investment universe.

There has certainly been a shakeout in the space — and perhaps warranted — but I think long-term, any industry that has seen this type of shakeout tends to emerge on the other side stronger, more resilient and with better allocated capital.

We’re still amidst some of that shakeout — not just in the cryptoassets themselves but also in the companies that are participating in the space — so certainly some of those valuations have come down and are very attractive. Others are still fraught with risk profiles ahead.

We’re really not closing our minds to very much relative to the [crypto] ecosystem. I think there are parts that are naturally more value-add from a growth standpoint, and that will tend to be where we focus on more than the picks and shovels, such as mining.

Blockworks: The ARK venture fund currently holds Chipper Cash, a fintech that offers access to crypto. Why did that company stand out to the firm? 

Staudt: We think the growth path in Africa and in some of the emerging markets for apps to really leapfrog what we know as traditional banking has huge potential. 

What we’ve seen in some of those emerging markets, particularly on the African continent, is companies and apps that have been very single-country focused. [Chipper Cash] has been able to utilize the different financial services into the app, whether that be banking or crypto lending, and they’re doing it in a cross-border manner.

Blockworks: How might institutional investor attitudes toward crypto be evolving as they weigh the market conditions, a development like the Ethereum Merge, or the prevalence of crypto hacks?

Staudt: The geopolitical backdrop right now is very challenging. The macroeconomic backdrop is very challenging. I think in periods like this, there is a tendency, and in some cases understandably so, to really focus on what you’re comfortable with and what you know.

You add on top of that that ESG is certainly at the forefront…within much of the institutional space.

I think a lot of gains have been made. At times, it’s two steps forward and one step back, but I think there should be a lot of confidence built by the fact that as progress has been made, such as the Ethereum Merge, you’re eliminating some of those barriers to entry for very large, sophisticated players and there will be a tipping point to that, especially as the world settles down.

As [Ark Invest CEO] Cathie [Wood] would say, that can happen very, very quickly. When you reach a tipping point in adoption from a technology standpoint but also from an asset allocation standpoint, the impacts can be very swift.

This interview has been edited for clarity and brevity.

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