Crypto for Advisors: The 2024 Year Ahead

2023
is
winding
down,
and
we
saw
a
big
year
of
cleanup
within
the
cryptocurrency
space
and
a
lot
of
regulatory
focus
both
in
the
U.S.
and
around
the
globe.

We
are
on
the
precipice
of
an
exciting
2024
with
a
lot
of
news,
activity
and
anticipation
of
spot
bitcoin
ETF
approvals
and
potentially
large
influxes
of
capital
into
the
space.

Thanks
to

Connor
Farley
from

Truvius
for
writing
about
the
2024
crypto
market
outlook
for
advisors.

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reading.

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Financial
advisors
and
their
clients
should
prepare
for
a
potential
transformative
leap
forward
for
the
crypto
asset
class
in
2024.
Significant
advances
in
market
structure
in
2023
and
deep
industry
innovation
in
the
new
year
indicate
that
rapid
institutional
adoption,
meaningfully
improved
advisor
investment
accessibility
and
bullish
catalysts
for
asset
prices
(not
just
bitcoin)
may
lie
ahead.
Below,
we
provide
a
2024
crypto
outlook
for
investors
seeking
to
diversify
their
overall
asset
mix
and
enact
a
thoughtful
digital
assets
allocation
plan.

2024
Crypto
Market
Outlook

When
it
comes
to
digital
assets,
advisors
should
ask
themselves
the
following
two
questions:
one,
why
crypto
and
two
why
now?

Lengthier
answers
exist
for
both,
but
the
simple
ones
are,
respectively:

1.
Only
a
few
of
us
have
been
around
for
the
inception
of
a
new
asset
class,
particularly
one
uniquely
powered
by
modern
technology
and
in
certain
cases
specifically
programmed
to
combat
the
glut
and
frictions
of
traditional
financial
markets.
Obtaining
exposure
to
an
alternative
set
of
assets
rooted
in
legitimate
value
–
measurable
by
blockchain
metrics
–
is
a
diversifying
and
generational
opportunity.

2.
The
industry
is
transitioning
from
early
adoption
to
mass
adoption.
A
sea
change
in
industry
leadership,
product
development
and
fiduciary
commitment
swept
crypto
in
2023,
enabling
a
new
suite
of
increasingly
institutional-grade
on-ramps
into
the
asset
class.

Besides
general
industry
trends,
conspicuous
catalysts
in
2024
may
also
trigger
rapid
investor
adoption
of
digital
assets.
These
events
include
the
potential
(and
seemingly
likely)

regulatory
approval
of
Bitcoin
and
Ethereum
spot
ETFs,
the

Bitcoin
halving
scheduled
for
April
2024
(a
once-every-four-years
event
that
reduces
the
supply
of
new
bitcoin),
and
a

dovish
macroeconomic
backdrop
and

slowing
inflationary
environment
–
each
on
their
own
a
meaningful
bullish
nod
for
crypto,
but
together
a
potentially
rare
opportunity
for
portfolio
positioning.

Crypto
≠
Bitcoin

With
context
in
place
for
crypto
as
part
of
an
overall
asset
allocation
mix,
we
turn
to
considerations

within
the
asset
class.

From
a
traditional
allocator’s
standpoint,
crypto
has
a
lopsidedness
problem.
Two
megacap
assets
–
bitcoin
and
ether
–
dominate
70%
of
the
market
capitalization
for
digital
assets.
Well-supported
investment
theses
exist
for
both
assets,
but
it
is
critical

not
to
overlook
the
fundamental
value
of
blockchain-powered
technologies
driving
new
business
sectors
like
decentralized
financial
services
and
smart
contract
platforms.

As
advisors
progress
on
their
crypto

learning
journey
and
position
themselves
for
2024,
remaining
open
to
the
investment
cases
for
other
sectors
is
key.
Just
like
crypto
can
be
diversified
to
stocks
and
bonds,
different
crypto
sectors
can
be

diversified
to
each
other
(see
Figures
1
and
2).
Diversifying
crypto
exposure
to
encompass
a
broad
range
of
investable
assets
reduces
single-token
concentration
and
grows
investor
expertise
in
the
asset
class
and
its
value.

Figure
1:
Quilt
Chart
of
Sector
Rankings
by
Monthly
Performance
(YTD
as
of
Dec.
13,
2023)

Improved
Market
Structure

Moving
from
analysis
to
implementation,
advisors
should
also
consider
the
various
methods
of
allocating
to
digital
assets
in
the
new
year.

2023
marked
a
turning
point
for
institutional
readiness.
Advances
in
qualified
custody
and
new,
thoughtful
linkages
between
custodians
and
trading
exchanges
provide
a
more
solid
ground
for
advisors
to
plan
their
digital
asset
exposure.
Reporting,
tax
statements
and
ease-of-use
are
coming
into
view,
with
U.S.
crypto
custodians
honing

compliant
RIA
platforms
to
meet
the
needs
of
advisors.
The
next
wave
of
market
innovation
will
likely
come
from
asset
managers
competing
on
intelligent
exposure
to
crypto
markets
as
the
product
adoption
cycle
moves
from

basic
passive
exposure
to
sophisticated
active
exposure.

Perspective
for
Advisors
in
2024

While
multiple
events
point
to
potentially
favorable
conditions
for
crypto
in
the
upcoming
year,
it
is
also
critical
to
understand
how
crypto’s
brief
and
volatile
history
has
led
to
better,
more
durable
options
for
investors.

Repeated
industry
failures
in
2022
stigmatized
the
asset
class,
and
mixed
regulatory
responses
have
blocked
timely
solutions
by
prominent
traditional
asset
managers
to
help
destigmatize
it
all,
drawing
focus
away
from
the
fundamental
value
of
blockchain
innovation
and
leaving
investors
scarred
by
fiduciary
ignorance.

These
events,
however,
have
driven
efforts
by
trained
financial
engineers,
CFAs,
and
traditional
asset
managers
to
migrate
legitimate
investment
solutions
over
from
the
traditional
asset
class
world,
with
prominent
“TradFi”
figures
now
helming
key
crypto
leadership
positions
at
digital
and

traditional
asset
management
companies.
These
efforts
crystallized
more
strongly
in
2023
and
appear
to
be
trending
faster
in
this
direction.

Supported
by
sturdier
industry
infrastructure
informed
by
lessons
learned,
advisors
now
have
a
better
–
but
still
nascent
–
array
of
investment
education,
product
options
and
platforms
not
only
to
help
avoid
the
pitfalls
of
early-adopter
risk,
but
to
exploit
early-adopter
premia
in
2024.

–
Connor
Farley,
CEO,
Truvius

Q.
Crypto
has
become
more
mainstream
and
sought
after
as
a
new
asset
class.
What
are
some
of
the
ways
investors
can
access
this
new
and
exciting
frontier
market?

A.
Many
people
who
look
to
invest
in
digital
assets
come
from
a
traditional
financial
markets
background
and
are
often
surprised
by
the
complexity
and
fundamental
differences
between
the
two.
Crypto
is
a
nuanced
and
highly
fragmented
market,
with
hundreds
of
centralized
exchanges
globally.
Yet
only
about
20
capture
significant
volumes,
and
then
about
five
get
most
of
the
trades.
The
largest
exchanges
with
the
deepest
liquidity
are
based
outside
of
the
U.S.
At
the
same
time,
there
are
just
three
relevant
exchanges
based
in
the
U.S.
Additionally,
there
are
decentralized
exchanges
(DEX),
which
are
peer-to-peer
marketplaces
where
trades
occur
on
a
chain
directly
between
crypto
traders.
Centralized
exchanges
run
internal
ledgers
that
balance
positions
across
their
clients.
There
are
over-the-counter
(OTC)
desks
that
provide
more
white
glove
service
to
institutional
investors.

Q.
Given
this
complexity,
what
is
a
good
way
for
investors
to
gain
access
to
crypto
strategies?

A.
Within
the
web
of
this
fragmented
market
are
multitudes
of
trading
strategies
that
offer
yield
generation,
arbitrage
opportunity
(as
all
frontier
markets
do)
and
superior
proxies
to
the
major
currencies
like
BTC
and
ETH.
One
way
to
access
these
opportunities
is
to
find
fund
structures
that
manage
the
investing,
such
as
classic
hedge
fund
structures
or
asset
management
firms
that
create
institutional-grade
products
using
digital
assets.
There
are
innovative
managed
accounts
platforms
that
allow
investors
access
to
many
of
these
strategies
in
a
more
transparent,
secure
and
controlled
environment.

–


Leo
Mindyuk,
CEO,
ML
Tech

Blackrock’s
latest
filing
with
the
SEC
includes
their
stock
ticker.

Coinbase

announced
plans
to
challenge
SEC
in
court
over
the
lack
of
regulatory
clarity
pertaining
to
the
crypto
space.

FTX
pushes
back
on
the
IRS
$24
billion
tax
bill
that
was
delivered
to
the
bankrupt
exchange.