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TradFi Doubles Down on Crypto Investments and Services Offering



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Institutional interest in digital assets remained unfazed even as the appetite for crypto products declined in Q1 on account of the uncertainty engulfing the sector and its players. Reports tracking these pooled investment funds noted an undaunted demand for crypto-based products. The latter observation was reflected by increasing bets on the asset class undismayed by last year's general poor market performance.

Institutional entities have not abandoned their taste for crypto

March's biggest headlines in the sector revolved around the intensified crackdown on crypto companies in the US scene resulting in some mulling exit from the hostile environment in search of favorable jurisdictions. Still, the regulatory clampdown on companies operating in the sector didn’t push investors into developing a dislike. On the contrary, investment products continued seeing interest, albeit lackluster, indicating supportive belief in the crypto sector.

CoinShares Digital Asset Fund Flows Weekly report published this week showed that digital asset investment products recorded $2.5 million inflows in the just concluded week in the face of a 33% week-over-week drop in trading volumes. Expectedly, Bitcoin (BTC) led with $8.8 million in weekly inflows for products offering crypto exposure. Ripple (XRP) topped other altcoins in the same regard, with products linked to it logging $800,000 in inflows.

To learn more about Ripple, check out our Investing in Ripple guide.

Traditional finance firms are actively seeking to offer crypto services

The resurgence of the crypto prices and NFT hype has seen banks reignite interest in offering their customers exposure to the new asset class. Beyond companies exploring direct exposure approaches, other financial institutions have continued embracing digital assets and seeking ways to provide related to their clients. The pursuit has mainly been catalyzed by the crisis that recently befell major banking institutions. This week, Swiss PostFinance bank became the latest to join the bandwagon, initiating plans to offer crypto trading and storing services.

PostFinance taps Sygnum for a digital asset banking services initiative

Digital asset services provider Sygnum noted a Wednesday announcement that its partnership with the government-backed retail bank would enable its customers to tune into the cryptocurrency market directly. Through the partnership, the Swiss retail bank's more than 2.5 million investors can specifically seek exposure to Bitcoin and Ethereum. Sygnum, whose B2B banking platform will be leveraged for the service, is fully regulated to operate in the country and is supervised by the Swiss Financial Market Supervisory Authority.

“Digital assets have become an integral part of the financial world, and our customers want access to this market at PostFinance, their trusted principal bank,” PostFinance CIO Philipp Merkt said. “A reputable and established partner like Sygnum Bank with an excellent service offering is more important than ever.”

The announcement also detailed that PostFinance is working to introduce staking as a revenue-generating service. Sygnum, whose B2B banking platform will be leveraged for the benefit, is fully regulated to operate in the country and is supervised by the Swiss Financial Market Supervisory Authority.

Blocknox secures BaFin license for its crypto custody plans

Notably, crypto adoption in Europe has grown in recent months. Blocknox, a part of Boerse Stuttgart Digital, revealed towards the end of March that it had secured approval to launch a crypto custody platform as part of its service offerings. The license, reportedly a first of its kind, from Germany's financial authority (BaFin) will allow Boerse Stuttgart Digital to offer custodial services without any acquisitions.

The new infrastructure targets institutional investors, including asset managers, family offices, and brokers. Boerse Stuttgart ranks among the top ten largest stock exchanges in the European Union region and is second domestically behind the Frankfurt exchange. The move marks another venture into the crypto sector, as the stock exchange service provider previously unveiled a crypto trading app in 2018. Earlier this week, Liechtenstein’s VP bank collaborated with Metaco to offer tokenization services to clients interested in digital assets. The bank adds to a list of others, including DekaBank, which partnered with the digital assets tech provider in January to provide crypto custody services to its clientele.

Other economies outside Europe, including South Korea and Hong Kong, have equally shown a willingness to embrace crypto.US market regulators, on the other hand, have been criticized for adopting a strong-arm approach in regulating the digital assets sector, which has, in turn, contributed to stifling innovation. Jurisdictions like Germany that have taken less pugnacious tactics have arguably made better progress. For instance, while the US Securities and Exchange Commission (SEC) is yet to approve a spot Bitcoin Exchange Traded Fund (ETF), counterparts at the Federal Financial Supervisory Authority (BaFin) have allowed similar products into their domestic market.

Nasdaq to offer Ether and Bitcoin custody services in Q2

In the case of Nasdaq, only a licensing agreement with New York regulators would allow for a launch of crypto custody services, according to Senior Vice President and Head of Nasdaq Digital Assets Ira Auerbach. A Mar 24 Bloomberg report confirmed that the global marketplace would start offering digital asset custodial services before the end of Q2 this year. The move will make it part of the increasing count of traditional finance firms that have the potential to serve as intermediaries for cryptocurrencies, now that the banking industry showed a potential weakness last in March.

Auerbach added that Nasdaq had tracked significant progress in acquiring all the technical infrastructure and regulatory approvals needed for its latest endeavor. Nasdaq seeks a limited-purpose trust company charter which, if approved, would enable it to operate a custody desk. The stock exchange operator revealed intentions to offer the said services last September owing to demand from institutional investors. In the latest update, Nasdaq noted it would debut its rollout with safekeeping for Bitcoin and Ether. Recent weeks have seen major banks serving crypto capitulate, and new entrants are filling the void. While most see this development as good for the industry, crypto podcaster Tony Edward believes that the recent incessant attacks against the crypto space were only to create a caveat for the traditional financial (TradFi) giants to establish themselves in this space.

To learn more about Ethereum, check out our Investing in Ethereum guide.

Fidelity Investments opens up hiring for the lead position in crypto and token RD

Nasdaq's application for licensing with New York regulators has primarily been viewed as a positive to the industry with the timing coinciding collapses of major crypto-friendly banks. In the same spirit, Fidelity Investments, one of the world's largest financial services companies, is building out its crypto research team.  Last week, Fidelity, which recently rolled out its Fidelity Crypto service to the public, announced a senior position opening to join its quantitative research and investments technology business as a team lead.

Per the March LinkedIn job post, the position would fall under the asset management business and highlights that the successful candidate’s responsibilities would entail developing data-driven and technically-oriented frameworks, mainly aimed at evaluating the various tokens and blockchain protocols that underlie the ever-evolving space of crypto and DeFi.  This individual would report directly to the Vice President of Quantitative Development, working closely with other Fidelity business and technology leaders to establish strategic priorities based on a proper understanding of business value needs.

Fidelity has been in the crypto market since 2018, having established an institutional trading and execution services team before recently launching commission-free trading for Bitcoin and Ether to millions of retail customers via Fidelity Crypto. Though the serious inroads made by Fidelity and Nasdaq imply the industry is growing, they also beckon a need for regulation.

Institutional funds show relentlessness in seeking exposure to digital assets

In the meantime, it remains to be seen how TradFi can adapt and innovate to meet the changing needs of its clientele in the digital asset economy. In a complementary fashion, hedge funds, asset managers, mutual fund companies, and other institutional investors have accelerated their uptake of crypto products. Ark Invest, for instance, has kept up a buying streak of Coinbase and Block shares while MicroStrategy, the largest corporate Bitcoin holder, has recently added to its Bitcoin reserves.

Michael Saylor's MicroStrategy now owns 140,000 BTCs in its reserves

MicroStrategy, the world's largest corporate Bitcoin holder, shared in a Wednesday filing with the SEC that it has added another 1,045 BTC to its coffers barely two weeks after its executive chairman revealed purchases totaling 6,455 BTC. The business intelligence firm has stuck to its approach of scooping Bitcoin since August 2020, doing so across different market cycles.

Thus far this year, the firm has bought more than 7,500 BTC bringing its cumulative acquisition to 140,000 BTC, at an average price of $29,803 per coin “inclusive of fees and expenses” per the latest filing. MicroStrategy's Bitcoin investment has been funded by several capital sources, including a $205 million loan from now-defunct bank Silvergate in March 2022. Though the loan was due to mature after three years, MicroStrategy repaid it last month in light of the bank’s collapse.

To learn more about Bitcoin, check out our Investing in Bitcoin guide.

Interest in ETFs products hasn’t cooled entirely

An April 3 report of a survey conducted by Brown Brothers Harriman (BBH) found that institutions remain interested in exploring crypto-themed Exchange Traded Funds (ETFs), albeit passively for now. The poll, which involved more than 300 participants, found that half intend to add crypto ETFs to their portfolio at some point this year. However, only a quarter showed a willingness to seek more exposure to digital assets indicating a decreased appetite for the same. The report accentuated the view that investors are learning to remain countenance in the face of wild price swings. The financial service firm also noted that the appetite for related ETF exposure would increase as regulators adopt better regulation approaches.

Fund outflows and inflows

CryptoCompare also reported that investors have been allocating more to crypto-related investments, with March marking the fourth consecutive month. The report noted that assets under management (AUM) for digital-asset products grew to $13.4 billion in March, translating to a 60% swell from their November 2022 low. Bitcoin denominated the majority of crypto investments that asset managers sought, accounting for an overall share of 72% – a nine-month high. The latter trend corresponded with an increase in Bitcoin dominance at the expense of altcoins. It was trailed by ProShares whose assets under management crossed the billion mark, reaching $1.08 billion. Grayscale Investments remained top, recording a month-over-month increase of 13.2% to $23.6 billion.

21Shares debuts ETP for Stacks native token

This week, Zurich-based crypto exchange-traded products (ETPs) issuers 21Shares unveiled an ETP offering with Stacks (STX) as the underlying asset. Stacks has been one of the best-performing tokens this year thanks to the hype around its protocol which claims to unlock the potential of Bitcoin in regard to smart contracts and decentralized applications. The ETF offering, 21Shares Stacks Staking ETP (ASTX) is the first of its kind as no other investment products are offering exposure to its according to Arthur Krause, Director of ETP Product at the issuers' parent company  ASTX became available to investors on the launch day on the BX Swiss exchange.

21Shares saw its second-best January in its history this year as the asset under management for its Ethereum and Bitcoin ETPs (AETH and ABTC) crossed $200 million. The Switzerland-based ETP issuer has logged $30 million in net new assets this year. Markedly, the product update comes after the firm reportedly revealed it would be winding down five of its offerings as it comes to terms with declining demand. Affected products include the 21Shares S&P Risk Controlled Ethereum Index ETP (SPETH), the 21Shares DeFi 10 Infrastructure ETP (DEFII), the 21Shares S&P Risk Controlled Bitcoin Index ETP (SPBTC), the 21Shares USD Yield ETP (USDY), and the 21Shares Crypto Layer 1 ETP (LAY1).

Bloomberg, which cited a company spokesperson, reported that 21Shares also intends to discontinue the 21Shares Terra Classic ETP (LUNA) on June 12. While the six funds mentioned above have seen cooling demand from investors (with a total of under $700,000 in assets), 21Shares' head of global communications Arielle Pennington, said that the company has witnessed its other ETPs make for a healthy business.

Overlooking 21Shares' plan to discontinue six ETP products, the performance of crypto ETFs has been encouraging. Data from ETF screener tool TrackInsight shows that several crypto ETPs have swelled 60% year-to-date as crypto prices bounce from 2022's record lows. Last March, New York-based ETFs issuer WisdomTree added to its line of offering to European investors ETPs for Cardano, Solana, and Polkadot. Other notable active crypto ETFs include ProShares Bitcoin Strategy (BITO), launched as the first Bitcoin-linked ETF in the US and the Bitwise 10 Crypto Index Fund (BITW).  ETF markets commentator Eric Balchunas observed that Bitcoin miners ETF posted a good performance in Q1, led by Valkyrie Bitcoin Miners ETF (WGMI), which topped non-leveraged ETFs.

To learn more about Stacks, check out our Investing in Stacks guide.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.