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Cryptocurrencies can become “regulator parts of people’s portfolios” once regulations become clear in the U.S., according to Franklin Templeton, which manages over $1.4 trillion in assets.
While investors now can buy crypto directly, there are limited ways for them to include digital assets in traditional portfolios, said Sandy Kaul, head of digital asset and industry advisory services at Franklin Templeton.
Earlier this month, BlackRock
BLK,
the world’s largest asset manager, filed an application for an exchange traded fund backed by bitcoin
BTCUSD,
with the U.S. SEC. Following that, Invesco
IVZ,
WisdomTree
WT,
Valkyrie, and Bitwise also applied to issue similar products.
The SEC approved several bitcoin futures-based ETFs in the past, but has yet to greenlight anything that is backed by bitcoin itself.
If a spot bitcoin ETF is approved, it could open up “a new access point where crypto can move into traditional portfolios, and really start to offer a new type of asset class to diversify the portfolio,” Kaul said in a phone interview.
Kaul said she is expecting more regulatory clarity from the U.S. regulators. While some regulators said existing laws are adequate for crypto, “they’re not giving a pathway of how to use existing law, which makes people feel maybe existing law is not adequate. I think [regulators] they are leaving too much uncertainty in the system,” noted Kaul.
If the SEC could clarify which crypto can be registered as U.S. securities, “we can include them in broader portfolios,” said Kaul.
“If you think of Ethereum
ETHUSD,
as a software development platform, we could then put Ethereum in a portfolio with traditional companies that are also engaged in software development. We can then put them into the sector funds where they best fit, and we can compare their growth in their market share against other companies in that sector,” according to Kaul.
Kaul added that Franklin Templeton’s OnChain U.S. Government Money Fund, whose shares are recorded on a blockchain, have seen increased interests from clients. The fund now manages over $290 million in assets as of the end of May.
“Originally, the purpose was to really exploit the operational efficiencies of blockchains,” according to Kaul, but after the Federal Reserve’s year-long series of interest rate hikes, “we’re seeing a lot more interest in being able to hold excess cash in our OnChain government money market funds.”
The fund’s seven-day effective yield went up to 5% on Monday, from 0.15% on March 31,2022. The Fed has raised its target funds rates to the range of 5% to 5.25% from 0% to 0.25% in March, 2022.
After the SEC sued crypto exchanges Binance and Coinbase, some market participants speculated that U.S. regulators may be favoring established Wall Street firms while acting against crypto native companies.
However, Kaul said she doesn’t think it was the case.
“I think established entities have a pre-existing relationship with the SEC, so it gives them more ability to get insights into what the SEC is thinking, whereas many of these crypto organizations don’t have those relationships,” Kaul said.
Bitcoin has rallied over 80% so far this year to above $30,000, while it is still down more than 50% from its all-time high in 2021, according to CoinDesk data.
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