Traditional wealth managers have been hesitant to dive into crypto, but these 5 fintechs
- The crypto market largely focuses on retail and institutional investors.
- Some crypto companies are servicing the wealth management gap.
- Insider spoke to industry experts about crypto fintechs serving wealth managers on their radar.
The growth of the crypto community over the past few years has largely been focused on two distinct groups: retail and institutional investors.
While the former served as the foundational base for the rise of digital assets initially, in recent years the industry has pushed to cater to large financial firms that can help further legitimize the space.
But in between the two groups exists another important cohort: wealth managers. With an estimated $38 trillion in client assets, according to McKinsey, the wealth management industry represents a space with unique needs separate from both mom and pop investors and large, traditional institutional players.
One issue is the industry is largely waiting for regulatory bodies like the Securities and Exchange Commission to give out more detailed guidelines on how to interact with crypto assets. Insider reported earlier this year that insurance companies have been very selective in the type of crypto policies they offer wealth management firms because of the lack of government regulation.
That in turn adds to the negatives that many wealth managers see in advising on digital assets, leading some to take a wait-and-see approach.
But others, like the inquisitives and the crypto zealots in the profession, are daring to venture into the space for their clients in spite of the unknowns. Even larger players have jumped in. Last summer, both JPMorgan and Wells Fargo began offering crypto products to wealth clients.
And while the market has been challenging this year —the price of ether and bitcoin have both dropped around 60% since the start of the year — many investors see the so-called crypto winter as an opportunity to buy low.
As a result, wealth management firms are turning to certain fintechs for help. Insider spoke with a handful of investors, consultants and c-suite execs in wealth management to identify key crypto fintechs helping wealth management firms take the plunge into crypto.
These are five fintechs helping wealth managers tap into the crypto market.
Name: Bitwise Investments
Total capital raised: $85 million
What it does: Asset manager that runs multiple crypto-focused index funds.
Bio: Bitwise oversees $1.3 billion, as of the end of 2021, for 1,500 wealth management firms, managing 12 private and two publicly-traded funds with access to more than 30 crypto assets. This year it also launched a separately managed account.
CEO Hunter Horsley created the company in 2017 with cofounder Hong Kim to provide a passive way for retail investors to get involved with the crypto markets.
“We heard from friends in finance across the buy side and sell side and at the big tech companies, ‘I’d like to invest in crypto, but I don’t have time to figure it all out and be constantly monitoring it.’ This was a widely held perspective,” said Horsley.
The company launched one of the first-ever crypto index funds in 2017 that has become one of the largest cryptocurrency index funds on the market. It followed that with a crypto ETF and a DeFi index fund.
Bitwise is run by a staff of 70 people spread between its New York headquarters and San Francisco office.
Name: Eaglebrook Advisors
Total capital raised: $25 million
What it does: Allows financial advisors to directly invest in digital assets like bitcoin and ether through separately managed accounts.
Bio: In 2018, Chris King was at Morgan Creek Capital investing in digital assets and crypto-focused companies when he noticed how underserved wealth management was when it came to crypto.
“All of these infrastructure and digital-asset companies were either building for the retail or institutional investor market. And everyone was ignoring the market in between, which is the wealth-management market,” said King.
As the son of a Merrill Lynch financial advisor whom he also interned for, King was no stranger to the space. So, in 2019, at the age of 23, he launched Eaglebrook Advisors.
With its 25 employees, Eaglebrook serves 75 investment advisory firms and more than 500 financial advisors, representing approximately $142 million in assets under management.
What’s more, the digital asset platform integrates with popular financial-advisor reporting tools like Orion, Black Diamond, and Addepar.
Total capital raised: $1 billion
What it does: Back-end tech to handle digital assets.
Bio: Fireblocks offers a digital asset infrastructure that works as a wallet and network to hold and move digital assets securely, supporting over 20 blockchains.
With security being a top concern of wealth managers entering the crypto space, Fireblocks can help firms build out secure custody operations for digital assets.
The company, which was started in 2018, has clients that include hedge funds, regional and global banks — including BNY Mellon — corporations, and digital-asset marketplaces like MoonPay and Crypto.com.
Fireblocks was started by Michael Shaulov, chief executive officer; Pavel Berengoltz, vice president of research and development; and Idan Ofrat, chief technology officer.
The Israel-based trio served in the Isreal Defense Force and worked together at a cybersecurity firm called Check Point.
In 2017, the three men were part of a third-party consulting team flown out to South Korea to look into The Lazarus Group‘s hack of two South Korean crypto exchanges. They walked away from the experience seeing two opportunities: use cryptography in cybersecurity and provide the crypto markets with a secure way to hold assets.
They launched Fireblocks out of Tel Aviv but have its headquarters in New York and offices in Boston, London, and Singapore, all of which house 550 employees. The bulk of the company’s clientele is in Western Europe and the Americas but Fireblocks Head of Corporate Strategy Adam Levine said it has clients on every continent except Antarctica.
Total capital raised: $70 million
What it does: A software developer tokenizing private-markets data through the use of blockchain technology
Bio: Inveniam CEO and founder Patrick O’Meara acquired a blockchain fintech company through an investment fund from a Forbes 400 family he was advising and used the fintech to launch Inveniam in 2017.
Inveniam tokenizes private-markets data via blockchain tech, which helps private funds get real-time performance metrics on their assets.
The startup has amassed $35 billion on its platform from about 350 funds and 20 clients. Its clients are from around the globe and include asset management firms, banks, and sovereign wealth funds. Cushman and Wakefield, one of the world’s largest commercial real estate services firms, is among its clientele.
Inveniam has attracted strategic investors such as Apex Group, a financial services firm that announced in September that it would be rolling out Inveniam’s products to institutional investors and family offices using its services that represent $3 trillion in client assets.
“We think the macro trend around transparency, observability in privates and alternatives is a trend that’s going to only grow. And there’s a regulatory tailwind behind us,” said O’Meara.
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