Ben Strack

Anchorage Digital has linked up with crypto SMA platform Eaglebrook Advisors to allow wealth managers easier access to an investment vehicle some expect to take off.&nbsp;



Financial advisers use the Eaglebrook platform to allocate to various crypto strategies. Now, this partnership gives those professionals regulated access to crypto via Anchorage — a bank chartered by the Office of the Comptroller of the Currency (OCC).



Anchorage meets the US Securities and Exchange Commission’s definition of a “qualified custodian,” the companies said Wednesday — a term floated in a February <a href="https://www.sec.gov/news/press-release/2023-30">proposal</a> by the regulator that would “entrust safekeeping of client assets” to such entities.&nbsp;



“After the recent <a href="https://blockworks.co/tag/sec">SEC</a> custody proposal, it is more important than ever for [registered investment advisers] to safeguard digital assets with a qualified custodian,” Anchorage Digital CEO Nathan McCauley said in a statement.



Eaglebrook is no stranger to partnerships.&nbsp;



Fund giant Franklin Templeton made a strategic investment in Eaglebrook in April 2022 before <a href="https://blockworks.co/news/franklin-templeton-preps-first-institutional-crypto-accounts">launching its first crypto SMAs</a> — available to advisers and wealth managers via Eaglebrook’s platform — that September. <a href="https://blockworks.co/news/ark-invest-jumps-into-crypto-sma-arena">Ark Invest then joined forces with Eaglebrook</a> in October 2022 for the debut of its crypto SMAs.



The latest partnership comes as various crypto and traditional finance firms are exploring the introduction of spot crypto ETFs as an alternative to separately managed accounts (SMAs).



Unlike such ETFs though, crypto SMAs offer exposure to a range of assets that clients can own directly. Certain accounts may also allow investors to engage in tax-loss harvesting.



Though crypto SMAs have come to the US market in the absence of these ETFs, some believe a bitcoin ETF would boost SMA demand.



Read more: <a href="https://blockworks.co/news/crypto-smas-hyperdrive">Eaglebrook CEO: Bitcoin ETF would send crypto SMAs ‘into hyperdrive’</a>



Asset managers on Eaglebrook’s platform — including Franklin Templeton and Ark, <a href="https://blockworks.co/news/crypto-smas-in-mutual-funds-out">as well as Bitwise</a> and Global X, and ARK Invest — will be able to launch their SMA strategies on Anchorage Digital.



Those four firms are among the companies with spot bitcoin ETF proposals currently in front of the SEC. An August <a href="https://blockworks.co/news/judges-grayscale-sec-ruling">court win by Grayscale Investments</a> over the regulator <a href="https://blockworks.co/news/grayscale-sec-spot-bitcoin-etf">made such an approval more likely</a>, some segment observers believe. &nbsp;



The SEC is <a href="https://blockworks.co/news/sec-decision-date-bitcoin-etf">slated to rule on the proposed Ark 21Shares Bitcoin ETF</a> by Jan. 10.



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Anchorage and Eaglebrook link up in bid to boost crypto SMA access

Michael Bodley

Bitwise Asset Management is continuing apace when it comes to customized cryptocurrency investment strategies.&nbsp;



The San Francisco-headquartered <a href="https://blockworks.co/tag/bitwise" target="_blank" rel="noreferrer noopener">Bitwise</a> introduced three new separately managed account (SMA) strategies on Wednesday, keying in on what the investor manager views as attractive exposures in a tricky environment for traders. 



The trio of new SMA strategies represent Bitwise’s latest partnership with Eaglebrook Advisors. The asset management platform is a standing Bitwise distribution partner that <a href="https://blockworks.co/news/eaglebrook-ceo-advisors-the-lowest-hanging-fruit-for-crypto-market">makes the investment manager’s products available to registered investment advisers</a> (RIA) to allocate to on behalf of their clients.



The three emerging SMA plays — Bitwise 10 Crypto Index Strategy, the Bitwise DeFi Crypto Index Strategy, and the Bitwise Crypto Category Leaders Strategy —&nbsp; impose a minimum investment of $10,000, according to a statement from both companies. Gemini is handling the custody of cryptocurrencies accordingly.&nbsp;



Bitwise CEO Hunter Horsley said in an interview with Blockworks on Wednesday that SEC-registered RIA <a href="https://blockworks.co/news/financial-advisers-unfazed-by-crypto-volatility">interest in digital asset SMAs and related liquid products</a>  is “actually growing quite rapidly,” despite the lingering aftershocks from the industry’s steep 2022 decline and ensuing bear market. 


<div class="wp-block-image">
<figure class="alignright size-medium"><img loading="lazy" decoding="async" width="1522" height="1180" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=300&amp;h=300" alt="" class="wp-image-52147" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=1522 1522w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=331 331w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=337 337w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=282 282w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/Screenshot-2023-04-13-at-1.54.40-PM.jpg?w=80 80w" sizes="auto, (max-width: 1522px) 100vw, 1522px" /><figcaption class="wp-element-caption">Bitwise CEO Hunter Horsley | Bitwise</figcaption></figure></div>


Bitwise, according to Horsley, has been emphasizing in its pitch for its SMA products that their underlying cryptoassets are owned by SMA investors.&nbsp;



<h2 class="wp-block-heading">Crypto custody still concern&nbsp;</h2>



Institutional and retail crypto traders alike have been generally wary of giving up <a href="https://blockworks.co/tag/custody">custody</a> of their crypto assets, at least since the implosion of the FTX cryptocurrency exchange.&nbsp;



Market participants are starting to pay close attention to the bankrupt exchange’s bankruptcy proceedings anew, considering recent indications that <a href="https://blockworks.co/news/ftx-europe-gets-green-light-to-sell">FTX may try to reopen as soon as next year</a> — even though billions of dollars of FTX customer cryptoassets remain frozen.&nbsp;



And the sentiment, according to market participants, has likely been only heightened by the spate of recent <a href="https://blockworks.co/tag/cftc">SEC</a> and <a href="https://blockworks.co/tag/cftc">CFTC</a> enforcement actions against crypto exchanges.&nbsp;



“SMAs now have even more appeal in some ways,” Horsley said, speaking generally about market conditions.&nbsp;



The new products bump Bitwise’s SMAs up to seven total strategies. A spokesperson declined to comment on the firm’s overall assets under management, citing the private funds the investment manager operates. Bitwise reported about $17.5 million of regulatory assets under management to the SEC in March 2023. This is the most recent data available.&nbsp;



“The fastest-growing vehicles in asset management writ large are ETFs and SMAs,” Horsley said. “Mutual funds are sort of the old school, and a lot of assets are turning over.”



Here’s how the company described its latest three products in the statement, which noted that the first two products are tied to existing indices. The latter is a new actively managed strategy that appears to appeal to institutional investors.&nbsp;



<ul class="wp-block-list">
<li>Bitwise 10 Large Cap Crypto Index: “includes 10 of the most highly valued crypto assets”</li>



<li>Bitwise Decentralized Finance Crypto Index: “tracks an index of the largest assets in decentralized finance”</li>



<li>Bitwise Crypto Category Leaders SMA: a “rules-based strategy that aims to select the leading crypto asset in each of the most important sectors in crypto”</li>
</ul>



Bitwise is up to about 1,500 clients now, according to the company, maintaining relationships with the likes of RIAs investing on the behalf of retail and accredited investors alike, as well as family offices looking for crypto exposures.&nbsp;



<h2 class="wp-block-heading">Institutional SMA appeal?</h2>



Bitwise also operates a number of separate asset management lines and strategies designed for institutional investors. These are intended to cater to the likes of pension plans and digital asset portfolio managers, including SEC-accredited hedge fund vehicles.&nbsp;



A fund of funds operation is one of them, as confirmed by SEC filings and market participants. Fund of funds generally gather limited partner or proprietary firm assets and invest them in outside portfolio managers.&nbsp;



The general marketing tactic is to offer institutional investors exposure to a mix of promising emerging managers, as well as their more established counterparts that may have restrictions on new investment tickets. These often happen as a result of funds hitting their internal capacity for a particular strategy.&nbsp;



Funds of funds models in the US can be applied via SMA or a commingled fund structure that imposes a lockup period on limited partner capital. There are SEC restrictions in place preventing marketing of those vehicles to non-accredited investors, or retail crypto traders in the industry’s case.&nbsp;



Asked how Bitwise is working to meet the needs of such institutions and sell their in-house strategies accordingly, Horsley said that “that’s a different audience that we also cover, and their point of view on an SMA is direct ownership.”



That equates to owning the underlying crypto assets and having instant liquidity. The latter setup is almost always the case when it comes to SMAs managed on Wall Street and in crypto. The former hinges on the specific setup put in place by the investment manager.



Deep-pocketed investors still on the hunt for crypto exposures through the bear market are almost universally demanding zero performance fees, as well as a “professional manager looking after the strategy.”



Read more: <a href="https://blockworks.co/news/bitwise-forms-active-strategies-team-citing-institutional-demand">Bitwise Forms Active Strategies Team, Citing Institutional Demand</a> 



<h2 class="wp-block-heading">Crypto hedge, venture plays among Bitwise focus</h2>



Horsley said that, generally, the goal of the firm’s institutional offerings is to craft a mix of exposures on behalf of Bitwise investors to crypto venture plays, as well as hedge funds “perhaps.” That’s in addition to the firm’s strategy of facilitating direct ownership of crypto assets.&nbsp;



The question, Horsley said, “[is] how do we do that in a durable way, where we don’t have to sort of constantly be monitoring ourselves and have a conflict with an institutional solution?”



In the case of the latest three SMAs in Bitwise’s partnership with Eaglebrook — which says it features “dozens” of SMAs run by RIAs overseeing more than $200 billion in collective assets under management — <a href="https://blockworks.co/tag/gemini" target="_blank" rel="noreferrer noopener">Gemini</a> handles the crypto custody. 



“What we strove to do here is to give a few different offerings to allow people to [have exposure] to large-cap digital assets, which is appealing to professional investors in general,”&nbsp; Horsley said. “We’re more focused on the large-cap part of the market. That’s true of institutions; that’s true of RIAs, as well.”



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Crypto SMAs Are In, Wall Street Mutual Funds Are Out: Bitwise CEO

<div id="highlights-block_635c34e84a51b" class="highlights">
 <ul>
 <li>Future crypto products “could take many forms” based on how regulatory environment evolves, according to the firm’s head of digital assets </li>
 <li>The firm’s clients are seeking a streamlined process to invest in this space </li>
 </ul>
 
</div>



Franklin Templeton is exploring ways to bring additional digital asset investment strategies to market following the launch of its crypto-focused separately managed accounts (SMAs) last month.



<a href="https://www.linkedin.com/in/roger-bayston-46256517a/">Roger Bayston</a>, the company’s segment lead, called digital assets “frontier risk alternatives” in a recent interview with Blockworks.&nbsp;



Franklin Templeton had roughly $1.3 trillion in assets under management, as of Sept. 30. One of its <a href="https://cms.blockworks.co/franklin-templeton-preps-first-institutional-crypto-accounts/">new crypto-focused SMAs</a> invests in 10 to 15 of the largest digital assets, excluding stablecoins and meme coins. Its other takes a similar approach, but bitcoin and ether are both capped at 25% of the portfolio.



The products come as <a href="https://cms.blockworks.co/74-of-institutions-plan-to-buy-crypto-fidelity-survey/" target="_blank" rel="noreferrer noopener">institutional adoption of crypto is on the rise</a>, according to a recent Fidelity survey, with 74% such investors saying they plan on buying digital assets in the future.



Bayston <a href="https://cms.blockworks.co/franklin-templeton-exec-crypto-asset-class-has-thematic-tailwinds/" target="_blank" rel="noreferrer noopener">said in May</a> that crypto was an asset class with “a great deal of thematic tailwinds,” as industries begin to unlock the potential of blockchain. 



More recently <a href="https://www.linkedin.com/in/sandy-kaul-8571877/" target="_blank" rel="noreferrer noopener">Sandy Kaul</a>, Franklin Templeton’s senior vice president of digital assets and industry advisory services, <a href="https://www.franklintempletonglobal.com/articles/disruption/evolution-of-commercial-technologies-and-impact-on-business-delivery" target="_blank" rel="noreferrer noopener">published research</a> about, in part, how decentralization is poised to disrupt traditional finance over the next decade. 



Blockworks checked back in with Bayston about what’s next.



Blockworks: Following the launch of crypto-focused SMAs, what other types of crypto offerings might the firm be looking to offer?



Bayston: We are committed to providing industry relevant opportunities to meet the evolving investment needs of our clients.



Our robust team of investment talent provides deep tokenomics research for our strategies, which are managed on a proprietary management platform built from the ground up. This gives us the expertise to offer the best advice and active management possible for our clients.&nbsp;



We are continuing to develop delivery mechanisms to deliver digital asset investment strategies for a variety of investors.



Blockworks: Could these include more SMAs? How about crypto-related ETFs?



Our experienced investment team has created many portfolio strategies utilizing various degrees of discretionary decision-making and research intensity.&nbsp;



Given the ripe field of innovation that blockchain technologies offer, you can expect Franklin Templeton to continue to bring relevant product ideas to the market. These products could take many forms based on current or future regulatory permissions.



Blockworks: What is the firm hearing from clients right now in regards to crypto?&nbsp;



Bayston: We believe that digital assets are frontier risk alternatives – new investable opportunities that capture the return streams of novel business models and can generate long-term growth.&nbsp;



We are seeing investors with a variety of interest, experience and exposure levels with these assets across the world and the desire for sound investment advice.&nbsp;



We are hearing from clients on the need for a streamlined process to invest in this space, founded on deep asset research and professional portfolio management, in order to generate the highest capital appreciation with an eye on risk management.



Blockworks: What are your thoughts on the <a href="https://cms.blockworks.co/ethereum-switches-to-proof-of-stake-after-7-years-of-work/" target="_blank" rel="noreferrer noopener">Ethereum Merge</a>? How could it impact adoption?  



Bayston: The transition to a proof-of-stake protocol illustrates the continuous innovation we see with blockchains, but more specifically represents a major software upgrade for the network with the possibility for improved security and capital and energy efficiency.&nbsp;



A resulting outcome of this event is a major reduction in Ethereum’s carbon footprint, which is desirable to appeal toward institutional ESG [environmental, social, governance] mandates. The evolution of Ethereum is an example of how this technology continues to evolve. Our investment platform will also evolve as the platforms grow and innovation in this space continues.



Blockworks: What crypto trends is Franklin Templeton most focused on right now?



Bayston: We believe that mass adoption of digital assets likely starts with the tokens themselves, and inclusion of these assets in investment portfolios will pave the way for other use cases for blockchain technology.&nbsp;



The digital asset space can bring two broad themes to investment management: expanding the opportunity set for investment options to include the blockchains themselves or bringing assets on chain in a more fungible way, and using the blockchain rails to create operational efficiencies across traditional asset management processes.



Blockworks: What does the company expect from a crypto regulatory perspective in the coming months? How might it be engaging to influence policy in the segment?



Bayston: There is substantial global regulatory development with digital assets in a variety of geographies, and we believe regulators are conducting their due diligence to take a measured approach to regulation.&nbsp;



We are comfortable navigating the global regulatory environment as it develops around the world.&nbsp; We’re a collaborator with regulators, given our focus on providing the best advice and service to our clients and view that the future of asset management includes blockchain technology and digital assets.



The interview was edited for clarity and brevity.



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Franklin Templeton Exec: Digital Assets Are ‘Frontier Risk Alternatives’

<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.



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


<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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