Wealth managers have a vested interest in the future of crypto

As cryptocurrencies fell, established money managers such as Abrdn, Charles Schwab, and BlackRock worked hard to gain a foothold in the market. Not by investing directly in volatile cryptocurrencies, mind you. Abrdn, the UK investment group, recently acquired a stake in digital asset exchange Archax. BlackRock opens direct access for customers to the crypto exchange Coinbase. Schwab has launched a crypto-linked exchange-traded fund.

Skeptics will say wealth managers are scrambling to take advantage of an immature, speculative market when unwary cryptocurrency betting clients are still vulnerable to hype or even scams. Caisse de dépôt et Placement du Québec, a major Canadian pension fund manager, has underscored the risks and written off what it says was a premature investment in bankrupt crypto lending platform Celsius Network.

BlackRock CEO Larry Fink was an early Bitcoin critic, accusing him of inconsistency at best. But when he flipped on bitcoin in 2017, crypto’s foundations were more fragile than they are today. It’s hardly surprising that companies like BlackRock, which is also developing a spot Bitcoin trust for institutional clients, are trying to target new groups of investors.

Wealth managers must be open to multiple financial futures. Cryptocurrency could become a legitimate way to hedge the portfolios of sophisticated investors like other alternative assets like wine or gold. It might still pay off to have some presence. But regardless of whether cryptocurrencies regain their previous levels or not, the history of the markets suggests that after bubbles burst, something useful usually remains.

By investing in the market superstructure now, money managers can also prepare for the possible advent of central bank digital currencies, which offer some of the promised benefits of crypto with the security of central bank backing. They improve their understanding of underlying technology such as blockchain. And they can put themselves in a position to hire innovative and fintech-savvy young people who are being laid off by declining crypto companies. In other words, it’s entirely possible to capitalize on crypto’s technology, entrepreneurship, and innovation while staying away from the asset class itself.

As for regular investors, the growing links between high finance and crypto seem a step away from the origins of digital currencies as a tool to tear down the establishment. But at least by screening their investments through orthodox institutions, they limit their exposure to theft and fraud. Despite this, cryptocurrencies are still largely unregulated, have the potential to contribute to broader market instability, and are a risky home for the savings of retail investors accustomed to more robust regulatory protections.

The obvious solution is to erect solid guardrails, as this newspaper has repeatedly suggested. Unfortunately, different agencies and countries have different attitudes. Financial entrepreneurs and innovators will naturally try to exploit such differences. For example, crypto companies are campaigning for cryptocurrencies to be regulated by the Commodity Futures Trading Commission, which regulates derivatives, rather than the more restrictive Securities and Exchange Commission.

In what remains a buyer-friendly market, the involvement of wealth managers offers a thin layer of additional security. Their interest could bolster surviving crypto companies looking to gain access to institutional clients. But with the power of wealth managers comes the responsibility to help the crypto market grow and help protect vulnerable investors.

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