Ben Strack

<div id="highlights-block_6347f0f932f73" class="highlights">
 <ul>
 <li>Crypto separately managed accounts are the vehicle of choice for the many advisors wanting to dive into the space</li>
 <li>Ark continues to pursue spot bitcoin ETF, looks to invest in private crypto companies via its new venture fund</li>
 </ul>
 
</div>



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 — <a href="https://cms.blockworks.co/ark-invest-jumps-into-crypto-sma-arena/" target="_blank" rel="noreferrer noopener">Ark Invest among them</a> — 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, <a href="https://www.cerulli.com/press-releases/cerulli-anticipates-84-trillion-in-wealth-transfers-through-2045" target="_blank" rel="noreferrer noopener">according to Cerulli Associates</a>.



<a href="https://newsroom.bankofamerica.com//content/newsroom/press-releases/2022/10/bank-of-america-private-bank-study-finds-younger-investors-turni.html" target="_blank" rel="noreferrer noopener">A survey of wealthy Americans</a> 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.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“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.</blockquote>



“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&amp;A with Staudt.



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<div class="wp-block-image">
<figure class="alignright size-full"><img loading="lazy" decoding="async" width="300" height="450" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png" alt="" class="wp-image-34438" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png?w=200 200w, https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png?w=171 171w, https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png?w=174 174w, https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png?w=146 146w, https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png?w=53 53w, https://blockworks-co.imgix.net/wp-content/uploads/2022/10/2022-10-13-Staudt025.png?w=33 33w" sizes="auto, (max-width: 300px) 100vw, 300px" /><figcaption>Tom Staudt</figcaption></figure></div>


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.&nbsp;



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?&nbsp;



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?&nbsp;



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.&nbsp;&nbsp;



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 <a href="https://ark-invest.com/strategy/ark-venture/" target="_blank" rel="noreferrer noopener">Ark’s new venture fund</a>? 



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?&nbsp;



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.&nbsp;



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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Ark Invest

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

<div id="highlights-block_633c27eda9ce4" class="highlights">
 <ul>
 <li>Pensions, endowments and corporations likely to pivot to these types of products once markets stabilize, according to Valkyrie’s head of distribution</li>
 <li>SMA wrappers allow for more curated exposure management than other securities offerings</li>
 </ul>
 
</div>



Valkyrie Investments has added new separately managed accounts (SMAs) for financial pros looking to offer crypto exposure to clients, becoming the latest fund group to utilize the wrapper.&nbsp;



The launch comes on the heels of similar offerings by Franklin Templeton and Ark Invest as industry watchers have said various institutions are seeking entry points into the asset class despite the bear market.&nbsp;



Financial wrappers allow pools of assets to be structured and sold as a single security — in this case, cryptocurrencies into an SMA.



Available to financial professionals and registered investment advisors (RIAs), Valkyrie’s new SMAs include a strategy focused on bitcoin, one investing in bitcoin and ether, and another more diversified option.&nbsp;



The latter SMA holds between five and 10 of the company’s highest-conviction opportunities across layer-1 and layer-2 protocols.&nbsp;Aside from BTC and ETH, the portfolio currently includes solana (SOL), polygon (MATIC) and polkadot (DOT), according to a fact sheet.&nbsp;



While the bitcoin and BTC/ETH accounts aim to maintain at least half of the portfolio in those assets, the diversified SMA seeks a minimum position of 40% in digital assets — with the remaining assets parked in cash. The three accounts each carry a management fee of 150 basis points and have minimum investments of $25,000. Gemini is the custodian for the SMAs.



<h3 class="wp-block-heading">Crypto SMAs allow direct ownership of digital assets</h3>



Valkyrie has three crypto-focused ETFs trading in the US with about $20 million in combined assets: Bitcoin Strategy (BTF), Bitcoin Miners (WGMI) and Balance Sheet Opportunities (VBB), the latter of which consisting of public companies with bitcoin exposure. 



Those three offerings are down between 52% and 67% year to date, alongside wider crypto markets. The Tennessee-based firm, which launched <a href="https://cms.blockworks.co/valkyrie-launches-its-first-multi-coin-trust/" target="_blank" rel="noreferrer noopener">its first multi-coin trust</a> for accredited investors in April and an <a href="https://cms.blockworks.co/crypto-asset-manager-valkyrie-launches-avalanche-trust-for-accredited-investors/" target="_blank" rel="noreferrer noopener">Avalanche-focused investment vehicle</a> the following month, is now using a different vehicle to offer exposure to the segment.



SMAs allow investors to have direct ownership of digital assets without the risk of holding them in separate wallets or on brokerage or lending platforms, John Key, Valkyrie’s head of distribution, told Blockworks. This is opposed to ETFs and other ETPs, in which investors own shares in the underlying fund, rather than its assets.



The SMA wrapper can be attractive to asset managers, advisers, RIAs and family offices in part because of the vehicle’s prevalence in traditional markets, he added.



“As the macro-economic picture and the broader financial markets have continued to deteriorate, more investors are starting to see this as an opportunity at an attractive entry point, based on beliefs over where long-term valuations may head,” Key said.&nbsp;



“Eventually, based on conversations we’re currently having with pensions, endowments, corporates and other large institutions, we expect them to pivot to these kinds of products once the markets stabilize and they become comfortable with the track record.”



<h3 class="wp-block-heading">Not just Valkyrie: TradFi is trending towards SMAs</h3>



The new Valkyrie SMAs continue somewhat of a trend in crypto product development, as more fund managers are utilizing the vehicle for the asset class.



Franklin Templeton, which manages roughly $1.4 trillion in assets, <a href="https://cms.blockworks.co/franklin-templeton-preps-first-institutional-crypto-accounts/" target="_blank" rel="noreferrer noopener">revealed last month</a> that it would be making available two crypto-focused SMAs. <a href="https://cms.blockworks.co/ark-invest-jumps-into-crypto-sma-arena/" target="_blank" rel="noreferrer noopener">Ark Invest said Monday</a> that it would offer similar accounts later this month.



<a href="https://www.cerulli.com/press-releases/cryptocurrency-hits-advisors-radars" target="_blank" rel="noreferrer noopener">A survey</a> published in March by Cerulli Associates found that 45% of financial advisers expected to use crypto in the next two years due to client requests.



Nina Tannenbaum, head of business operations at Algorand, said that crypto SMAs will become even more prevalent as institutions start to add early exposure to more traditional portfolios.



“They allow portfolio managers to cultivate an isolated investment and risk profile across their desired crypto exposures while ringfencing from the broader portfolio,” Tannenbaum told Blockworks.&nbsp;



“This will enable more curated exposure management, easier risk oversight and hedging of the direct crypto exposures, while also affording the chance to contract with best-in-class crypto sub-advisors and Web3 asset managers.”



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crypto SMA

Valkyrie Adds Crypto SMAs as Institutions Eye Digital Assets

<div id="highlights-block_633b023ca6933" class="highlights">
 <ul>
 <li>Move comes a few weeks after Franklin Templeton offered its first crypto-focused SMAs via Eaglebrook Advisors’ platform</li>
 <li>Eaglebrook CEO says firm has “a pipeline of large asset managers” looking to move into crypto space</li>
 </ul>
 
</div>



A fund group known for its investments in cutting-edge technology is set to bring its first crypto separately managed accounts (SMAs) just weeks after one of the world’s largest asset managers went that route.&nbsp;



Ark Invest has partnered with digital asset SMA platform Eaglebrook Advisors to offer the strategies to clients of registered investment advisers in what Eaglebrook CEO Christopher King told Blockworks is becoming a trend.&nbsp;



The asset manager’s Cryptocurrency Strategy primarily invests in bitcoin and ether. Ark’s Cryptoasset Strategy seeks to invest in the top 10 or 20 coins related to smart contract networks, DeFi and Web3, as well as infrastructure and scaling. The SMAs are set to launch on Oct. 17.



“We have a pipeline of large asset managers, but will stagger these launches to ensure success of each asset manager launch,” King said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We are looking to work with any sophisticated asset manager looking to move into the crypto space and be the technology platform to launch their products,” he said.</blockquote>



The upcoming launch follows <a href="https://cms.blockworks.co/franklin-templeton-preps-first-institutional-crypto-accounts/" target="_blank" rel="noreferrer noopener">Franklin Templeton’s move to offer crypto-focused SMAs</a> for the first time. The fund giant, with roughly $1.4 trillion in assets under management, similarly teamed up with Eaglebrook to do so, and was also slated to make these offerings available to financial advisers and wealth managers by mid-October.



Roger Bayston, Franklin’s head of digital assets, told Blockworks at the time that customized SMAs are “a perfect delivery mechanism” for digital assets, adding that the wrapper is prevalent in traditional finance.&nbsp;



Ark Invest has eight ETFs trading in the US with combined assets under management of about $14 billion. The fund group is one of many fund managers <a href="https://cms.blockworks.co/ark-files-for-bitcoin-etf/" target="_blank" rel="noreferrer noopener">seeking to bring a spot bitcoin ETF</a> to market, though the SEC has not yet approved such an offering.&nbsp;



The company last week launched a venture fund for US investors that invests in public and private companies focused on robotics, energy storage, genomic sequencing, artificial intelligence and blockchain technology. One of <a href="https://ark-ventures.com/portfolio/" target="_blank" rel="noreferrer noopener">its holdings</a> is Chipper Cash, a private startup that offers a digital wallet with products such as cross-border payments, access to crypto and virtual cards.



Ark Invest crypto analyst Yassine Elmandjra said the firm believes its new crypto SMAs present an attractive entry point for investors.



“Crypto’s price action in the last year suggests that the ecosystem is fundamentally stronger than investors in traditional asset management are willing to acknowledge,” he said in a statement. “We’re thrilled to be offering actively managed crypto strategies to advisors during a time when, we believe, much of the speculative behavior has died down.”



An Ark Invest spokesperson did not immediately return a request for comment.



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Ark Invest Jumps Into Crypto SMA Arena

<div id="highlights-block_60ec7e91832eb" class="highlights">
 <ul>
 <li>Firm’s Digital Growth Strategy allow clients to own the underlying assets, giving them ability to own private keys</li>
 <li>The uncorrelation and diversification that cryptocurrencies offer investors will “never go away,” Leavenworth CEO says</li>
 </ul>
 
</div>



A new firm is looking to fill what it considers to be a void for investors in the digital assets space by launching an actively managed crypto strategy that pairs long-standing asset management techniques with the growing demand for cryptocurrencies.



Leavenworth Capital, based in Oregon, has launched an actively managed digital asset offering. The company is focused on developing and managing institutional-grade separately managed accounts, SMAs, that invest in cryptocurrencies, including bitcoin. But unlike many of the passively managed vehicles that exclusively hold bitcoin, the SMA aims to beat it.



Jack Shepherd, Leavenworth Capital founder and CEO, most recently worked as a vice president for Transamerica’s mutual fund business. Prior to that, he was at Jensen Investment Management, Deutsche Bank and Thornburg Investment Management.&nbsp;



“I had worked for traditional investment firms in the past, and so essentially that’s really all we’re doing with Leavenworth,” Shepherd told Blockworks in an interview. “We’re not really reinventing the wheel here. We’re taking what’s been done in traditional finance and asset management for the last 50-plus years and just applying it to cryptos.”



But Shepherd said it took some time for him to see the potential of cryptocurrencies as an asset class. With more research he became “absolutely hooked,” he explained, unable to sleep as he wanted to learn more.&nbsp;



He and Ranjan Grover, now the Leavenworth Capital chief investment officer and portfolio manager, had discussed various investment ideas for several years. Grover has a PhD in optical sciences and brings an understanding of blockchain technology and its use cases in financial services and portfolio construction. He has worked in a range of roles at Intel since 2008, according to <a href="https://www.linkedin.com/in/ranjan-grover-212b90/">his LinkedIn profile</a>, serving as a senior data scientist there since January 2020.



“With his technology background and trading expertise and ability to really generate alpha in all asset classes, but specifically in the crypto space, we just started having conversations,” Shepherd said. “We came to the conclusion that there’s really an unmet need for crypto SMAs in the marketplace, and that’s usually a pretty good time and place to start a business.”



The new company is one of the crypto industry’s earlier adopters of the Global Investment Performance Standards, GIPS, a framework for performance measurement and presentation. Its first offering, the Leavenworth Digital Growth Strategy, is actively managed, making it unique to many other crypto products on the market.&nbsp;



Leavenworth Capital’s four-step process shrinks the 4,000 or so possible cryptocurrencies to a focused, manageable investable universe, Shepherd said. The firm then does fundamental, bottom-up research to determine what ends up in the portfolio.&nbsp;



Firm leaders also pointed out that with most existing investment vehicles in the space, clients don’t actually own the underlying asset. Crypto ETFs in Canada and elsewhere, for example, are designed to allow investors access to crypto exposure without the risk of self-custody within a digital wallet. The SEC is mulling the applications of about a dozen such products in the US.&nbsp;



“By utilizing our investment strategy our clients actually own the underlying assets, meaning they have the option to own their own private keys,” Grover said in a statement. “In a world where there is only 21 million bitcoin with about 18.75 million in circulation, we believe that individuals should own their cryptocurrencies and not just have an investment in an ETF or a closed-end fund.”



Bitcoin’s performance compared to the S&amp;P 500, gold, oil, and bonds, for example, was “hard to ignore,” Shepherd said, noting that its lack of correlation has made it attractive to university endowments and foundations in the last few years.&nbsp;



Many of the biggest registered investment advisers have a 5% or 10% allocation to alternatives like hedge funds, real estate or private equity, he added, and cryptos should also be considered within this mix.



Cathie Wood, Ark’s CEO and founder, said last November at a virtual Barron’s conference that she believes <a href="https://www.barrons.com/articles/bitcoin-could-hit-500-000-according-to-ark-invests-catherine-wood-51605906264">bitcoin could hit $500,000</a> in the long-term if institutions assign a mid-single-digital allocation to bitcoin, as they did with asset classes such as real estate and emerging markets.&nbsp;



Paul Tudor Jones, founder and CIO of <a href="https://www.tudor.com/">Tudor Investment Corporation</a>, said last month that bitcoin is a portfolio diversifier amid inflation concerns, noting that <a href="https://cms.blockworks.co/paul-tudor-jones-likes-bitcoin-as-portfolio-diversifier/">he favors a 5% allocation</a> to the cryptocurrency.&nbsp;



“Is bitcoin going to return 200% a year for the upcoming 10 years?” Shepherd said. “Nobody knows, nobody has a crystal ball, but the uncorrelation and the diversification that it provides for a high-net-worth individual, or an individual or a multi-billion-dollar RIA and their client base is unbelievable, and that’ll never go away.”

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