A new report by investment bank Bernstein suggests the emerging crypto fund management industry could rapidly balloon into a $50 billion market as regulatory barriers fall and mainstream adoption rises.
Released Monday, the report estimates the total revenue potential for crypto asset managers at up to 4% of the current $1.08 trillion crypto market capitalization. This implies massive growth from crypto’s current cottage industry-like status, with just $50 billion in managed assets today.
Bernstein foresees crypto fund management evolving into a formal, regulated industry managing between $500-$650 billion in assets within five years. The expected approval of spot bitcoin exchange-traded funds (ETFs) in the US appears poised to unleash a flood of capital into crypto markets and investment vehicles.
“We expect a hockey stick adoption, with 2024 as the landmark regulatory year for approval of ETFs,” the report states. Other key predictions include ETFs capturing 10% of bitcoin and ether’s market capitalization and crypto hedge funds managing 5-6% of total crypto assets.
Powering this growth would be surging demand from mainstream investors and financial advisors looking to add crypto exposure. Bernstein points to integrated wealth management products from banks and easier access to crypto ETFs in retail brokerage accounts as driving forces.
The ETF Question
Crypto spot ETFs have become something of a holy grail for the industry after years of rejections by the Securities and Exchange Commission (SEC). Things appeared to shift this summer when giants like Fidelity and BlackRock filed spot ETF applications.
However, the SEC punted its decision deadline to October, leaving the market waiting with bated breath. Should spot ETFs finally get the green light, many experts believe the floodgates will open to billions in fresh capital.
Currently, US investors are limited to investing in crypto futures ETFs or buying tokens directly. But a spot ETF would allow exposure to crypto prices without direct custody, lowering barriers for risk-averse institutions and retail traders.
Other jurisdictions like Canada and some European nations have already approved spot bitcoin and ether ETFs. Data shows these products have proven immensely popular, taking in billions in assets so far. If similar demand translates to the US, Bernstein’s estimates could prove conservative.
Crypto Funds Gaining Legitimacy
Along with ETFs, Bernstein sees growing adoption of actively managed crypto hedge funds and index funds. As crypto assets mature and institutional expertise grows, fund managers are gaining more credibility with mainstream investors.
Well-known hedge funds like ARK Invest, Renaissance Technologies and Brevan Howard all run crypto investment products now. And crypto-native firms like Pantera Capital and Galaxy Digital have returned billions to clients as the asset class grows.
Regulatory bodies have also begun approving crypto funds, bringing increased oversight and accountability to the segment. In the past year, fund managers have launched registered offerings in Canada, Australia, and Switzerland.
Despite the promise, Bernstein acknowledges the path forward has obstacles. Cryptocurrencies remain highly speculative, volatile assets. Questions about custody solutions, regulations, and taxes all create uncertainty for big investors.
Until better guardrails emerge around areas like stablecoins, decentralized finance (DeFi), and know-your-customer (KYC) rules, some institutions will stay sidelined. And the threat of heavy-handed policies also worries the market.
Nonetheless, the underlying blockchain technology has captured Wall Street’s imagination. With blue chip companies and banks racing to capitalize on Web3 innovations, confidence is rising.
As crypto integrates further with mainstream finance, most experts agree the fund management industry’s growth seems inevitable. The only question now seems to be how fast institutional dollars will arrive and in what form.