The success of bitcoin spot ETFs combined with bitcoin’s price action have driven investors to demand direct access or exposure to crypto from their service providers. Institutional investors and traditional financial services providers now have a responsibility to at the minimum learn about crypto, if not actively look into adoption.
The spotlight now is increasingly on the wealth advisory segment, with BlackRock’s Head of Digital Assets recently telling Bloomberg that the asset manager is starting to see more wealth advisory activity in crypto. At Binance, our VIP & institutional business has likewise received increased interest from high-net-worth individuals and their wealth managers, who have told us they are taking a medium to long-term view as they look to incorporate crypto into their portfolios.
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While the cryptocurrency industry has experienced tremendous growth, the vast majority of institutional capital, of which the private wealth segment makes up a significant portion, has yet to enter the space. There are several reasons why including a lack of understanding of the technology, regulatory uncertainty and concerns about volatility. Above all, private wealth is a traditional segment with its own nuances and high-touch requirements, while crypto can demand a good amount of heavy lifting with respect to due diligence, given the sector’s nascency.
High-touch requirements and the DYOR ethos
Crypto is the first asset class to be developed by a distributed community and one that’s made us rethink our financial systems. Traditional market participants have increasingly bought into bitcoin because they recognize the impact of crypto and how its core ideas of trustlessness, transparency and proof-of-reserves have the potential for new efficiencies and value.
But unlike traditional assets that have long been institutionalized, securitized and packaged into off-the-shelf products, the foundational pillars of crypto are still being built. This means crypto has a long way to go with institutionalization and eventual consolidation with the structures of traditional finance. Depending on an investor’s risk profile and investment time horizon, this can represent new opportunities.
For private wealth investors who have accepted the volatility of crypto, the DYOR (Do Your Own Research) ethos nonetheless has become a recurring pain point. These investors and their wealth managers have expressed to us their strong interest in crypto, but have found the learning process challenging. To help them unlock access, we have to provide an experience that is similar to that found in traditional finance.
Private wealth clients are used to high-touch service throughout the lifecycle of their wealth management needs, supported by their wealth bankers and financial advisors in everything from onboarding to investment recommendations. The crypto industry needs exchange infrastructure solutions for wealth managers to support their high-net-worth investors (HNWI). More must be done to activate this segment, and the success of the crypto ETFs launched last year illustrates that product-market fit is key to meeting the pent up demand.
Besides educating investors about crypto, our industry must develop products that are tailored to the needs of HWNIs and family offices to make the onboarding process simpler. Bitwise’s latest survey of financial advisors indicates interest in crypto from the wealth advisory segment is set to increase, but access remains a major blocker. Products that bridge crypto with traditional finance will help engage and unlock private wealth, further legitimizing the asset class.
