Guy Hirsch, the US Managing Director of the trading platform eToro, recently shared his thoughts on the future of cryptocurrency index funds and ETFs, as well as the different aspects of institutional investment in cryptocurrency in an exclusive interview with ETF Trends.
Hirsch told ETF Trends that institutional investors understand blockchain’s potential, adding the U.S. has “already seen some large institutions break into the crypto market and build out their exposure.”
“Bear markets are especially attractive for institutional investors to enter the fray,” Hirsch said. “Customers have a growing demand for cryptocurrencies, and that’s why we’ve seen institutions — from investment banks to hedge funds like Morgan Creek — move into the crypto space with futures trading desks and crypto index funds.”
Hirsch notes that Goldman Sachs-backed Circle saw a boom in crypto demand from institutional investors in May and June despite the bear market.
Hirsch said some institutional investors may have reservations about investing in cryptocurrencies, noting that one main concern is a lack of custody capabilities in the asset class.
“Custodial concerns are extremely important for CIOs, and if they are unfamiliar with the brand of the custodian of the asset, they won’t get comfortable getting involved in the market,” he said. “Volatility is always a key concern as well, in addition to skepticism about the driver of returns on crypto assets and a lack of regulation in the space.”
To remedy these concerns, Hirsch said crypto platforms and exchanges will need to solve the custody issue in order to attract more institutional investors.
“I think we will see more partnerships that will address this problem by providing crypto custody and storage solutions, which could take the form of partnerships between exchanges and SEC-related broker-dealers,” he said.
Specifically addressing the recent launch of Morgan Creek and Bitwise’s crypto index fund, Hirsch said “as the rate of adoption increases, I think we’ll see more crypto-institutional partnerships take the form of the Bitwise/Morgan Creek model, where investment management institutions partner with crypto index providers to supply a product.”
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Finally, following the recent slate of Bitcoin ETF application rejections, Hirsch said the main issues “have been that proposals for Bitcoin ETF products haven’t demonstrated that they can prevent fraudulent and manipulative acts and practices.”
However, Hirsch does see a light at the end of the tunnel.
“If the SEC approves a Bitcoin ETF, the resulting uptick in the price of bitcoin (and other altcoins) could lead to a surge in institutional demand,” he said. “A favorable ruling on a Bitcoin ETF product could be exactly the validation that endowments, pension funds and family offices need to look toward crypto investments to diversify their portfolios.”
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