Casey Wagner

<div id="highlights-block_635c111075d85" class="highlights">
 <ul>
 <li>BNY Mellon reported that 70% of institutional investors surveyed would be interested in crypto if they had services from firms they trust</li>
 <li>TradFi is also hesitant to enter crypto without more regulatory clarity</li>
 </ul>
 
</div>



Institutional investors are looking for familiar names to provide their crypto services, and Wall Street is delivering.



BNY Mellon, America’s oldest bank and one of the more <a href="https://cms.blockworks.co/bny-mellon-digital-assets-are-coming-of-age/" target="_blank" rel="noreferrer noopener">crypto-friendly institutions</a>, said earlier this month that <a href="https://cms.blockworks.co/bny-mellon-moves-to-let-institutions-hold-bitcoin-ether/" target="_blank" rel="noreferrer noopener">select institutional clients</a> will be able to hold and transfer bitcoin and ether through its new crypto custody offering. Nasdaq said in September it would be looking into offering similar services. Boston-based State Street has been plotting its crypto custody plans since March 2022 when it <a href="https://newsroom.statestreet.com/press-releases/press-release-details/2022/State-Street-to-Develop-Digital-Custody-in-Collaboration-with-Copper.co/default.aspx" target="_blank" rel="noreferrer noopener">revealed</a> its partnership with crypto-native Copper.&nbsp;



The trend is not surprising, Talia Klein, BNY Mellon’s head of digital asset custody commercial product, said during a <a href="https://cms.blockworks.co/webinars/cryptos-institutional-landscape-liquidity-security-scalability/" target="_blank" rel="noreferrer noopener">Blockworks webinar</a> this week.&nbsp;



“We&#8217;re seeing a lot of institutional interest [in crypto,]” Klein said. “As you think about what is prohibiting others from getting into the space, what we&#8217;ve seen is that people require an institutional grade provider.”&nbsp;



In a research <a href="https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/insights/migration-digital-assets-survey.pdf?mkt_tok=MzUzLUhSQi03OTIAAAGHvmLXAzH2AAbtr4WhHPMQ9VVq5uJ1KZRfRulJLv16X1_ZoOjbzOvT6K_QZLbyEh56IoS06me2xKP5MVsRYWOmWjfHUvagHGV1EWrMvzGY" target="_blank" rel="noreferrer noopener">report</a> published alongside its custody announcement, BNY Mellon reported 70% of institutional investors surveyed would “increase their digital asset activity if services like custody and execution are available from recognized, trusted institutions.”&nbsp;



Institutional investors are more concerned about getting into crypto in a safe and compliant manner instead of jumping in immediately with hopes of high returns, Matthew Savarese, vice president and global head of strategy at Nasdaq, added.&nbsp;



“Twelve months ago, everyone was worried about how to get into the space in the quickest way possible,” Savarese said. “Now, with the so-called crypto winter, people are taking a step back to say, ‘All right, let&#8217;s assess to make sure that we&#8217;re solving for information security, market fragmentation, liquidity, understanding what credit intermediation is, what quality execution looks like.’”&nbsp;



More options are available today, Savarese added, from both traditional financial institutions and crypto-native companies.



The current regulatory environment is also weighing on institutional investors and slowing their entry into the space, webinar panelists agreed.&nbsp;



“Whenever you&#8217;re operating in an environment like this, where this industry is rapidly evolving…we’re trying to stay one one step ahead,” said Geoffrey Clauss, chief revenue officer at blockchain infrastructure provider Blockdaemon.



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BNY Mellon, Nasdaq Say Institutions Want TradFi To Handle Their Crypto

Ben Strack

<div id="highlights-block_635a5c5c01ff2" class="highlights">
 <ul>
 <li>Investors cited decentralization, uncorrelation to other assets and the macro environment as reasons to get involved in digital assets</li>
 <li>About 35% of respondents believe digital assets should be viewed as an independent investment class, up from 23% in 2021</li>
 </ul>
 
</div>



Financial services giant Fidelity has found more institutions are invested in crypto than a year ago, despite the market downturn.



Fidelity found 58% of surveyed investors reported owning digital assets in the first half of 2022, representing an increase of 6% year over year, according to Fidelity Digital Assets’ fourth annual Institutional Investor Digital Assets Study published Thursday. 



“While the markets have faced headwinds in recent months, we believe that digital assets fundamentals remain strong and that the institutionalization of the market over the past several years has positioned it to weather recent events,” Fidelity Digital Assets President Tom Jessop said in a statement.&nbsp;



The survey included 1,052 institutional investors across Asia, Europe and the US.



Digital asset ownership was highest in Asia, with 69% of institutions in the region reporting investments in the segment. That number was lower in Europe (69%) and the US (42%), though the figures represented rises of 11 points and 9 points, respectively, from a year ago.  



<h3>Which institutions are investing?</h3>



High-net-worth investors drove the gains in Europe and the US, while financial advisers also contributed to the increase in Europe.



Overall, global digital asset usage is highest among venture capital funds (87%), followed by high-net-worth individuals (82%) and advisers (73%).



Ark Invest Chief Operating Officer Tom Staudt <a href="https://cms.blockworks.co/ark-invest-coo-wealth-managers-should-be-massive-target-for-crypto-space/" target="_blank" rel="noreferrer noopener">told Blockworks</a> earlier this month that advisers — a segment he said has been long ignored by the crypto industry — will be critical to mass crypto adoption. <a href="https://cms.blockworks.co/ark-invest-jumps-into-crypto-sma-arena/" target="_blank" rel="noreferrer noopener">Ark</a> and other companies, such as <a href="https://cms.blockworks.co/franklin-templeton-preps-first-institutional-crypto-accounts/" target="_blank" rel="noreferrer noopener">Franklin Templeton</a> and <a href="https://cms.blockworks.co/valkyrie-adds-crypto-smas-as-institutions-eye-digital-assets/" target="_blank" rel="noreferrer noopener">Valkyrie Investments</a>, launched crypto-focused separately managed accounts (SMAs) for investment professionals. 



Despite the market downturn, institutional investors have more recently established an understanding of the technology and value proposition of digital assets, said Chris Kuiper, Fidelity Digital Assets’ director of research. He added that the increase in infrastructure and investment products available to institutions has also likely contributed to the higher adoption rates.&nbsp;



“Investors surveyed cited the high potential upside and innovative technology play of this emerging industry, along with enabling decentralization, uncorrelation to other assets, and the current macro/inflation environment, as appealing characteristics of the asset class,” he told Blockworks.



Nearly 40% of the institutions buy digital assets directly, with bitcoin and ether being the most popular assets. Fidelity’s digital assets division is <a href="https://cms.blockworks.co/new-fidelity-plans-suggest-ethers-non-security-status-is-here-to-stay/" target="_blank" rel="noreferrer noopener">set to roll out ether trading</a> to institutional clients on Oct. 28, a spokesperson told Blockworks last week. Industry watchers have said <a href="https://cms.blockworks.co/fixed-income-hungry-institutions-next-play-is-likely-ether/" target="_blank" rel="noreferrer noopener">ether would likely be a more attractive play for institutions</a> following Ethereum’s <a href="https://cms.blockworks.co/ethereum-switches-to-proof-of-stake-after-7-years-of-work/" target="_blank" rel="noreferrer noopener">transition from proof-of-work to proof-of-stake</a>.



Of those surveyed, 35% said they buy investment products holding crypto, while 30% buy investment products holding digital assets companies and 20% gain exposure via futures contracts.



<h3>Fidelity survey shows growing respect for crypto</h3>



About 35% of respondents believe digital assets should be viewed as an independent investment class, up from 23% in 2021.



“This is one of many data points that validate trends we’re seeing within our own business: increased institutional participation and acknowledgement of the maturation of the digital asset market and infrastructure,” Kuiper said.



Still, 74% of the surveyed institutions said they plan on buying digital assets in the future.&nbsp;



The future preference to buy remained consistent year over year globally for financial advisers, family offices, pensions, crypto hedge funds and venture capital funds, as well as endowments and foundations.



Half of respondents cited price volatility as the biggest barrier to investing in crypto — consistent with the 2021 Fidelity <a href="https://www.fidelitydigitalassets.com/research-and-insights/fidelity-digital-assets-2021-institutional-investor-digital-assets-study" target="_blank" rel="noreferrer noopener">study</a>.



“While short-term price fluctuation is a characteristic somewhat inherent to this emerging asset class, many of the other concerns cited by respondents can be addressed as institutional investors move through their journey of education,” Kuiper said.



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74% of Institutions Plan To Buy Crypto: Fidelity Survey

<div id="highlights-block_631a2becd2248" class="highlights">
 <ul>
 <li>The firm is offering a market cap-weighted strategy that invests in 10 to 15 of the largest digital assets, as well as a similar one that caps allocations to BTC and ETH</li>
 <li>Franklin Templeton made a strategic investment in SMA platform Eaglebrook Advisors in April</li>
 </ul>
 
</div>



Franklin Templeton is set to offer cryptocurrency-focused separately managed accounts (SMAs) to investment professionals for the first time.



The move is the latest example of a traditional finance giant diving into digital assets — despite the ongoing bear market. Separately managed accounts are sometimes favored by institutional investors over commingled funds, because they come with customized strategy and risk profiles, as well as instant liquidity.&nbsp;



The launches follow Franklin Templeton’s <a href="https://www.prnewswire.com/news-releases/eaglebrook-advisors-raises-strategic-capital-from-franklin-templeton-301518638.html" target="_blank" rel="noreferrer noopener">strategic investment</a> in SMA platform Eaglebrook Advisors in April. The $1.4 trillion asset manager’s first crypto strategies will be available to financial advisers and wealth managers working with US investors via Eaglebrook’s turnkey platform by mid-October.



Roger Bayston, Franklin’s head of digital assets, told Blockworks the firm’s registered investment adviser (RIA) partners have a growing interest in alternative investments, including crypto. But regulatory ambiguity in the US means cryptoassets are not yet securities, he added.&nbsp;



“Customized SMAs are a perfect delivery mechanism for these assets constructed by sound advice,” Bayston said in an email. “SMAs are a significant business in traditional finance, and we are bringing these digital assets into a high-quality product offering delivered via RIAs. This is a further extension of what we do.”



Eaglebrook Advisors CEO Christopher King said Franklin Templeton’s new offerings represent “an inflection point” for crypto, as the US wealth management market is demanding professionally managed digital asset SMA strategies from trusted asset managers.



He called the segment the “lowest-hanging fruit” for the crypto market <a href="https://cms.blockworks.co/eaglebrook-ceo-advisors-the-lowest-hanging-fruit-for-crypto-market/" target="_blank" rel="noreferrer noopener">in an interview with Blockworks last year</a>, adding at the time that about 95% of the adviser market had not yet invested in cryptoassets.



“We are working together on sales and distribution of these strategies and helping wealth managers and the clients they serve understand the digital asset market,” King told Blockworks.&nbsp;



Franklin Templeton’s Digital Assets Core SMA is a market cap-weighted strategy that invests in 10 to 15 of the largest digital assets, excluding stablecoins and meme coins.



Its Digital Assets Core Capped SMA takes a similar approach, but caps its allocations to bitcoin (BTC) and ether (ETH) at 25% of the portfolio each.&nbsp;



Though competing asset managers, such as <a href="https://cms.blockworks.co/blackrock-lists-blockchain-etf-days-after-similar-fidelity-launch/" target="_blank" rel="noreferrer noopener">BlackRock</a> and <a href="https://cms.blockworks.co/fidelity-launches-metaverse-experience-in-tandem-with-new-etfs/" target="_blank" rel="noreferrer noopener">Fidelity</a>, launched ETFs focused on blockchain technologies in April, Bayston said then that Franklin Templeton was still mulling the right time for an entrance. 



Fidelity in April moved to allow certain US workers to <a href="https://cms.blockworks.co/fidelity-delves-deeper-into-crypto-by-allowing-bitcoin-in-401ks/" target="_blank" rel="noreferrer noopener">allocate a portion of their retirement savings to bitcoin</a> through the company’s 401(k) plan investment lineup. BlackRock, the world’s largest asset manager with roughly $8.5 trillion, <a href="https://cms.blockworks.co/industry-watchers-execs-weigh-significance-of-blackrock-coinbase-deal/" target="_blank" rel="noreferrer noopener">partnered with Coinbase</a> last month and days later <a href="https://cms.blockworks.co/blackrock-launches-spot-bitcoin-private-trust/" target="_blank" rel="noreferrer noopener">launched a bitcoin private trust</a>.



“I’m sure more and more TradFi firms are preparing to enter this innovation-driven asset class,” said CK Zheng, an ex-Credit Suisse executive who co-founded crypto hedge fund ZX Squared Capital last year. “Even though we can’t forecast when the crypto winter will end, we know much demand from both institutional investors and high-net-worth individuals will come when the next crypto bull market starts.” 



Franklin Templeton’s product rollout came the same day as <a href="https://cms.blockworks.co/mysten-labs-300m-fundraise-values-business-at-more-than-2b/" target="_blank" rel="noreferrer noopener">Mysten Labs’ $300 million fundraise</a>. The asset manager participated in the Series B round — valuing the Web3 infrastructure company at roughly $2 billion — alongside FTX Ventures, a16z and others.



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Franklin Templeton Preps First Institutional Crypto Accounts

David Canellis

<div id="highlights-block_62a37456b7e08" class="highlights">
 <ul>
 <li>For an event about the future of money, mention of crypto was few and far between</li>
 <li>Many finance incumbents find promise in blockchain but aren’t yet sure of the use cases</li>
 </ul>
 
</div>



Bigwigs decked out in the buttoned-up suits of Wall Street representing the rails of traditional finance, from Mastercard to Visa, Stripe to JPMorgan, at Amsterdam’s Money20/20 <a href="https://www.money2020.com" target="_blank" rel="noreferrer noopener">conference this week</a> largely relegated crypto to the sidelines. 



The concept was more a curiosity than a tangible sector of finance — with execs from crypto-native companies such as Ripple and Kraken defending digital assets.



Compliance and anti-money laundering units Chainalysis and Elliptic commanded prominent floor space, directly opposite each other at entrance, like rivals battling over prospective TradFi clients. Tucked slightly further back were startups geared toward helping the institutional crowd access crypto exposure, such as Fireblocks and Copper.



Mainstage panels focused specifically on digital assets were generally tasked with parsing the throes of regulation — such as trust in DeFi, bookended by jokes about the Terra debacle.



“It’s no question that crypto has huge potential to develop,” said Simonas Krėpšta, a Lithuania central bank board member, during one of the first Tuesday sessions, titled “How far can you go with Crypto FOMO?” Lithuania is home to some 400 crypto exchanges, Krėpšta said, but lacks a formal licensing program.



Added Krėpšta: “If the crypto sector wants to be accepted more broadly, there needs to be more trust between the community and the industry – stablecoins should be stable. We need regulators to better understand the sector, but crypto needs to be quite bold and sometimes even volunteer for stricter regulation than traditional finance.”



<h3>Stablecoins, stablecoins, stablecoins</h3>



At one off-stage panel, Sendi Young, Ripple’s managing director for the UK and Europe, pitched cross-border payments as digital assets’ supreme use case (no surprise there, considering business-to-business remittances are Ripple’s primary sales fodder).



Cyril Mathew, Stripe’s global crypto partnerships lead, on the other hand, detailed the firm’s recent payout tests for Twitter content creators. Last month, Stripe moved to allow businesses to pay customers in crypto via the Polygon blockchain, starting with Circle’s dollar-pegged stablecoin USDC.



“Our first foray into crypto was in 2014 when we started accepting bitcoin payments,” Mathew said. “The market wasn’t quite ready – people aren’t trying to pay for goods and services in bitcoin, this is actually the obstacles for retail payments.”&nbsp;



Mathew added Stripe, which wants to “serve and inspire growth in the GDP of the internet,” deems retail payments quite ready to be disrupted by digital assets, but payouts in stablecoins “make a lot of sense today.”



For an event about the future of money, bitcoin, ether and other non-stablecoin cryptocurrencies were mentioned very little, outside of a “how to decarbonize crypto” fireside chat tucked away at a “Sex and Drugs and Rock and Roll Bar” on the final day.



There were, however, discussions of NFTs and the potential of Web3 to transform behaviors. Perhaps more aptly, merge physical behaviors that have existed for thousands of years (collecting shiny objects) with the metaverse.



Vlad Panchenko and Ori Levi, respectively CEOs of DMarket and NFTrade, alongside Julia Morrongiello, head of European growth at Zero Hash, ultimately disagreed as to whether gaming, ticketing or fractionalizing exotic and illiquid investments were NFTs’ killer app.&nbsp;



“The potential for NFTs tied to in-game items are what I’m most excited about,” Levi said behind sunglasses, wearing a loud shirt that was somewhat out-of-place in the expansive RAI conference center.



Levi went on: “People invest so much of their lives into games, and with NFTs you finally have ownership.” He predicted that traveling between metaverses with in-game NFT items will happen “very soon.”



On the mainstage, Helen Hai, head of NFTs and fan tokens at Binance, leveraged much of her 20-minute spot to detail philanthropy propelled by the exchange’s charity arm. She also pitched the potential role of blockchain and NFTs in the “fourth industrial revolution” – a process pegged to meld physical and digital constructs over the next century.



<h3>Crypto ‘curation’ might help bridge the gap</h3>



For Berlin-based startup Finoa, though, institutional interest has grown fast — and not just in stablecoins. One year ago, Finoa closed a $22 million Series A round led by major UK venture fund Balderton Capital. At the time, it boasted more than 250 clients, including German equity specialist Bankhaus Scheich – that figure is now beyond 300.



The company has mostly served as a trusted (and regulated) third party – keeping digital assets safe for various crypto market participants, such as VC firms.



Marius Lunding Smith, Finoa’s head of strategy, told Blockworks the company is now moving to become a “fully-fledged crypto bank by curating access to everything Web3, allowing institutions to participate in a manner they can understand.” In other words: under strict regulatory and security parameters.



Smith said stablecoins weren’t a focal point for customers, although there is demand for crypto-native interest accounts, which are generally denominated in US-pegged stablecoins.&nbsp;



Still, Finoa found a few years back that bitcoin and ether claimed most of the demand. Now, crypto-savvy investors — for instance crypto funds that just invested in a new token — want custody and staking services for the newer layer-1 tokens, such as NEAR, polkadot, tezos, flow and MINA.



As to whether finance incumbents will move beyond their apparent obsession with dollar-pegged stablecoins, Smith expressed a holistic view:



“There will always be the ones chasing the highest yields which come at high risk. We need to be there and enable participation and access for the ones that have that appetite. For others, it’s about ensuring they can interact with the most mainstream tokens in a manner that makes sense – conservative, good yields that are more sustainable, safe, and have lower risk.”



And, so, curation is necessary when offering digital assets to institutional-types, Smith said. There are platforms that allow participation in practically every cryptocurrency, which works if they’re purely a technology provider, but operating within regulatory boundaries is a different story.



The crypto industry has a responsibility to make sure the ecosystem can be understood by traditional systems.&nbsp;



“Otherwise, we will never really get mass adoption,” Smith said.



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