This $20 trillion corner of investing could drive the lion’s share of crypto ETF demand, CEO says

Exchange-traded fund investors are getting even more interested in cryptocurrency exposure — and the advent of things like bitcoin futures ETFs could lead to a demand explosion, one CEO says.

“The stars are aligning right now for demand for crypto allocation in the advisor community when you look at 30 years of declining interest rates and … what that does to your fixed-income allocation,” ETF Trends CEO Tom Lydon told CNBC’s “ETF Edge” this week.

“With inflation, with the demand for alternative investments and the current trend in the cryptocurrency area, there’s a lot of pressure on advisors to take a stake,” he said in the Monday interview.

Eighty-one percent of financial advisors said they received questions about crypto in 2020, up from 76% in 2019, in a survey conducted by Bitwise Asset Management and ETF Trends. The number of advisors who allocated to crypto in their clients’ portfolios rose to 9.4% from 6.3%, the survey found.

With ProShares and Valkyrie Funds’ new bitcoin futures ETFs already making waves, such products could be the key to unlocking trillions of dollars in investor demand, Lydon said.

“There’s this whole middle market where financial advisors manage about $20 trillion that really don’t have the best solution right now. And right now, it appears that the futures-based ETF might be that,” he said. “That’s really where the lion’s share of the demand will be coming.”

The U.S. ETF market currently accounts for roughly $6.5 trillion in assets under management. The crypto opportunity for ETF providers and advisors alike is substantial: a $2 trillion market with 200 million users.

Add to that bitcoin’s perceived hedging power against rising inflation — 25% of advisors saw it as an inflation hedge in the Bitwise/ETF Trends’ survey this year, up from just 9% last year — and countries such as El Salvador adopting it as currency, and the crypto craze is likely still in the early innings, Lydon said.

“There are more people that want to get bitcoin in their hands in some way and it doesn’t seem to be waning anytime soon,” he said.

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