Ben Strack

As business leaders prepare for a cashless economy in which crypto could play a larger role, the ability to protect customer and client data remains a concern.&nbsp;



About a third of executives expect the shift to a cashless economy to occur in the next five years, according to a survey published by consulting firm Protiviti and Oxford University.&nbsp;



Roughly 85% expect such a future to come 10 years from now, with 87% expecting assets like bitcoin, ether and tether to impact their businesses.



The <a href="https://images.learnmore.protiviti.com/Web/Protiviti/%7Be37fda91-b9cf-4f86-8612-80b070237cee%7D_Executive_Outlook_on_the_Future_of_Money__2033_and_Beyond.pdf">survey</a>, conducted between July and September gathered responses from 251 board members, C-suite executives and other business leaders in North America, Europe and Asia.&nbsp;



Cory Gunderson, Protiviti’s executive vice president of global solutions, said in a statement that transforming the global monetary system could cause “significant disruptions for business operations worldwide.”



Nearly nine of 10 respondents said they are concerned about their ability to protect customer and client data in a future that leans more heavily on digital currencies.



More needs to be done around preventing fraud and improving security to boost user confidence, noted Protiviti managing director Mike Brauneis.



&#8220;Contrast crypto transfers to mainstream banking and credit card transactions, which benefit from decades of development in regulatory frameworks and insurance schemes that limit consumers&#8217; liability for unauthorized transactions,” he said in a statement.&nbsp;



Regulatory agencies will seek to put in place more guardrails within the payments and crypto space, according to a KPMG <a href="https://kpmg.com/us/en/articles/2022/ten-key-regulatory-challenges-2023-payments-crypto.html#:~:text=Regulatory%20authority%20and%20guardrails,-Agencies%20will%20continue&amp;text=Grant%20clear%20regulatory%20authorities%2C%20including,non%2Dsecurity%E2%80%9D%20crypto%20assets.">report</a> — with a focus on areas including <a href="https://blockworks.co/tag/stablecoins">stablecoins</a> and central bank digital currencies (<a href="https://blockworks.co/tag/cbdc">CBDCs</a>).



Read more: <a href="https://blockworks.co/news/congress-cbdc-privacy-concerns">Privacy remains sticking point in America’s ongoing CBDC debate</a>



Price volatility has also created a barrier to adoption of certain crypto assets created as a reliable store of value, according to Brauneis.&nbsp;&nbsp;



The price of bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) and ether (<a href="https://blockworks.co/price/eth">ETH</a>) are up 110% and 58%, respectively, year to date — but are still well below all-time highs reached in November 2021.&nbsp;



<a href="https://blockworks.co/news/pantera-stablecoins-competition-btc-eth">Stablecoins are poised to offer benefits</a> bitcoin and ether don’t always offer, a Pantera Capital executive argued in a letter last week — enabling peer-to-peer transactions, as well as helping protect against unstable currencies and avoid trusting service providers.



The market capitalization of stablecoin tether (<a href="https://blockworks.co/price/usdt">USDT</a>) stands at roughly $85 billion, behind only BTC and ETH.&nbsp;&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

 85% expect cashless future in 10 years: Survey

Daniel Dob

Calling blockchain and its associated technologies an “industry” is, to some, still an insult. To call it a “sector” is too dismissive, an “asset-class” too reductive. How about: Prophets of a new sacred social covenant? Defenders of libertarian finance? Acolytes of a decentralized faith? Trustees of the trustless? A belief in the wisdom of crowds.



For the longest time, crypto has served as an alternative institution: Whether it’s for finance, art or community, it’s considered a tokenized counter-cultural movement. Permissionless, trustless, decentralized, open, embracing the fringe — a community where everyone is welcome, and no one can tell us what to do.



Yet even the most red-fevered crypto-anarchist must admit by now that the direction of travel is set. Whatever primitive emancipation certain users experienced from the traditional financial system through crypto is fading.&nbsp;



Old money is coming, and global finance is moving on-chain.&nbsp;



The idea that crypto can become a mainstay social force without old money is quaint. Like it or not, these financial behemoths run the world. If there is to be a new on-chain, decentralized internet financial system, then established paradigms of money management that are backed to the hilt by legislative structures have to be involved. It’s by taking advantage of crypto’s unique properties through these institutional structures that will allow crypto’s potential to truly flower.



And even a blind man can see old money’s interest in crypto.&nbsp;



ETFs are a huge gateway drug to this adoption. Crypto has waited with baited breath on the result of applications led by <a href="https://blockworks.co/news/sec-delays-bitcoin-etfs-valkyrie-blackrock">BlackRock</a> and co. Even <a href="https://blockworks.co/news/sec-delays-bitcoin-etfs-valkyrie-blackrock" target="_blank" rel="noreferrer noopener">pension funds are opening to bitcoin</a>, with Fidelity, the largest US-based 401(k), leading the charge. In fact, many believe the accumulation is well-underway and the only reason why we haven’t dropped lower — remember bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) at $15K post FTX slump? ETFs might signal only the starting gun — not the moon push many expect. That will come later, when every single financial account manager finds they need to offer 5% exposure because everyone else is doing it.



Read more from our opinion section: <a href="https://blockworks.co/news/defi-reputation-real-world-assets-industry-lessons" target="_blank" rel="noreferrer noopener">DeFi has a reputation problem</a>



Has crypto failed to build an alt financial system? Is crypto straight up replicating centralized finance, now even more so by using traditional finance liquidity? Yes and no. Crypto is like water, it adapts to the shape of the glass. Should an institution want to add BTC to its balance sheet, it can — whether through an <a href="https://blockworks.co/tag/spot-bitcoin-etf" target="_blank" rel="noreferrer noopener">ETF</a> or via self-custody off a P2P exchange. Should you want to live CEXless and own your coins in kind, you can. The Infinite Machine is now mature enough to take any shape assigned. To some, it’s not about breaking free of Wall Street, but about catering to it. To others, it’s about living the on-chain life.



Then, if TradFi goes all in, what does this world look like?



Soon enough, DeFi TVLs will be boosted by pension fund buy-ins, ticker tapes for derivative baskets of cryptos will roll daily across Bloomberg News and investment shops will let Mom n’ Pop buy indexes that track the entirety of the shitcoin spectrum. Banks won’t just let you buy crypto — they’ll buy it with your retail savings and give you 3% a year.&nbsp;&nbsp;



Eventually, if not imminently, investment banks will trade <a href="https://blockworks.co/tag/nfts" target="_blank" rel="noreferrer noopener">NFT</a> portfolios over their OTC desks. Some bright young thing in a whip-sharp suit will concoct synthetic CDOs and credit default swaps on tranches of CryptoPunks, and before you know it, grandma’s pension fund will own apes. Ultimately, we’ll all have apes. Or be apes — fractal pieces of ownership in the crystalline structures of global finance. <a href="https://blockworks.co/tag/tokenization" target="_blank" rel="noreferrer noopener">Tokenized assets</a>, mutual funds, ETFs. These indexes that track whole markets have a fungibility and legitimacy that can’t be achieved any other way. They are, in short, what people truly mean when they say “adoption.”



But wait, isn’t crypto replete with problems? <a href="https://blockworks.co/news/fincen-doj-tornado-cash-dapps" target="_blank" rel="noreferrer noopener">Scams, hacks, unclear regulation</a>, the grave freedom that is self-custody. They are problems institutional money was invented to solve, yet crypto solves and does things iMoney only can at great expense and with enormous inefficiency: settlement risk, remittance, HFT, exchange fee handling, dividend payout, payment processing, insurance arbitrage. The list is as long as the financial service sector itself.



An influx of retail money channeled through financial scions will create the predictable yields that let innovation truly prosper. Everyone will take mainstream finance crypto projects seriously. Innovation will, newly minted, go into overdrive. A whole cabal of investors, entities that sit currently outside the angel and VC edge cases that are the current primers of any crypto run, will be looking for Web3 projects to make sustainable, long-term investments in.&nbsp;



Crypto, whether you like it or not, is going to become an industry, and — if it truly proves the widespread utility it has claimed, especially as scaling challenges are met and bad actors are flushed out — might be all the better for it.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Ex-journo, legal ace, comms lead, and narrator of new-age net tales, now at the helm of GM Factory, where he helps digital neophytes beam beyond the daybreak. </div>


<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

Old money doesn’t ruin the cypherpunk dream

Simon Schaber

Traditional banks and crypto have not had the most stellar years.&nbsp;



After a tumultuous wave of collapses and centralized downfalls, crypto projects now face<a href="https://nymag.com/intelligencer/2023/05/is-the-federal-government-trying-to-kill-off-crypto.html"> intense</a> and seemingly unreasonably harsh regulatory scrutiny. And as the US Federal Reserve seizes and sells off <a href="https://www.nytimes.com/2023/05/01/business/first-republic-bank-jpmorgan.html">yet another bank</a> in an ongoing wave of bank failures, legacy institutions now find their risk assessment mechanisms placed under the microscope.



So what do these industries have to learn from each other, if anything at all?&nbsp;



If you ask investors in either sector, they would likely tell you that this industry-wide turbulence stems from risk assessment and a lack of diversification. That much is certainly true.&nbsp;



But they’d also likely tell you that the scenarios unfolding in crypto and traditional finance are totally unrelated.



And they would be right, to an extent. Each sector certainly has its own inherent risk factors simply based on how they operate and broadly handle investments and finances. But crypto and traditional finance both adopting a “do as I say, not as I do” mentality toward diversification as a key risk mitigator means they can’t effectively practice it themselves.



That closed dialogue on risk creates a real silo between TradFi and crypto communities, isolating themselves from each other based on their own presumptions.&nbsp;



Not every risk in traditional investing and crypto investing is mutually exclusive, and hubris from investors and banks can create ignorance toward the nuances in each sector that only stepping out of their risk echo chambers can solve.



<h2 class="wp-block-heading">The key disconnects</h2>



By and large, traditional institutions still view crypto as an unruly, unwieldy industry largely run by con artists. And many projects haven’t done themselves any favors in rectifying that. But because institutions don’t necessarily want to miss out on crypto’s potential, they still often enter the space, just in the most basic way possible.



A bank deliberating adopting crypto, for instance, might think it’s sufficiently diverse to add bitcoin to its balance sheet and call it a day. Conversely, it might offer crypto investments to its clientele through only one source and as an afterthought to its other investment services. That’s not a sufficient amount of diversification.



In crypto, younger and technically-savvy investors generally tend to dismiss the virtues of traditional finance, naively assuming that, in understanding the crypto ecosystem, they must be experts on the broader financial market too. Because of how crypto and DeFi operate, investors often think that the industry is not beholden to the same rules of gravity as traditional markets, and therefore don’t take them as seriously.



This lack of understanding on both sides occurs in the middle of many crypto and DeFi platforms’ plans to woo legacy institutions and large-scale liquidity providers to give the industry a certified seal of approval. But for that to happen, DeFi can no longer be a fly-by-night market — it does actually require some forethought and long-term strategy, which it can and should learn from traditional finance itself.



<h2 class="wp-block-heading">Fostering real collaboration</h2>



That unwillingness of actors in both sectors to step out of their respective risk echo chambers is part of the reason why constant calls for “bridging” between these two industries come across as hollow. Both sides are not usually referring to meaningful collaboration, they simply want one industry to acquiesce to the rules and operations of another.



Consolidating the disconnects between these sectors requires both to understand the blind spots of investors and institutions in both sectors. That is non-negotiable.



For example, DeFi investors can have a hard time grasping the amount of specialization and custodial aspects in traditional institutions, given the relative self-reliance required to participate in decentralized markets. Crypto companies champion doing your own research when it comes to&nbsp; technical and financial aspects, but they don’t really hold your hand through this research.



DeFi as a whole also typically moves at a much faster pace than traditional markets, and this price action volatility can sideswipe investors and institutions more accustomed to the relatively predictable pace of traditional finance. Simply put, decentralized markets don’t close on the weekend or holidays. And while it would be useful to have an on-chain 24-hour market on real-world assets, that’s unlikely to happen at this point.



Read more from our opinion section: <a href="https://blockworks.co/news/zero-interest-rate-web3-identity" target="_blank" rel="noreferrer noopener">The death of free money won’t stop crypto</a>



Institutions and experienced financial investors adopted long-term risk management strategies that have stood the test of time. Yet when it comes to DeFi, they view purchasing crypto as a substantial move into decentralized, and therefore unknown, territory. Here, institutional actors must learn from DeFi natives how to properly diversify their portfolios, and treat digital assets with the same sophistication and nuance given to traditional markets instead of a singular stock option.



DeFi natives, then, should step out of their comfort zone by taking a page out of finance’s handbook on tried-and-true risk management. While still only in its infancy, investors native to the new financial ecosystem have yet to fully maximize its potential, and they can only do that by going beyond the scope of what is applicable to only decentralized ecosystems.



On the regulatory front, DeFi has much less to adhere to in terms of rules and best practices, <a href="https://www.coindesk.com/policy/2023/04/17/sec-lays-its-cards-on-the-table-with-assertion-that-defi-falls-under-securities-rules/">at least for the time being.</a> But with more regulations in the pipeline, using the traditional financial sector as an example of adjusting an industry to new mandates would be helpful.



Contending both ends of these dynamic markets requires a deep dive into seeing what they have to offer each other in terms of investment knowledge. Reworking skills and strategies to suit the unique purposes of DeFi and traditional finance can maximize diversification and, in turn, concretely impact risk management capabilities.&nbsp;



Encouraging knowledge sharing is just the first step — but it’s perhaps the most critical one to take.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Simon Schaber, Spool DAO&#8217;s Chief Business Development Officer has been following the development of the Crypto economy ever since the rise of Bitcoin began in 2009. He opened up the world of digital assets to prominent Family Offices, VC fund managers, Corporate Banks and key decision-makers of the world&#8217;s largest corporations since the advent of Ethereum in 2014. Having founded and built multiple million-dollar businesses from the ground up he remains a realist regardless of market conditions.</div>


<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

DeFi degens and finance bros: Let’s be friends

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.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

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

<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 class="wp-block-heading">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 class="wp-block-heading">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.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

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.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

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 class="wp-block-heading">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 class="wp-block-heading">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.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.