A recent report by Bernstein pointed out that the crypto industry is expected to change from a “cottage industry” to a full-fledged “formal, regulated asset management industry” over the next five years. In this process, the managed assets are expected to rise from $50 billion to $500–$650 billion.
In fact, in terms of revenue, the crypto fund management business could be worth up to $50 billion. According to analysts led by Gautam Chhugani, the potential launch of spot-based BTC ETFs in the U.S. will likely trigger capital inflows into the market. The report pointed out that the figure weighed around 4% of the present size of the crypto market.
‘Hockey Stick’ Adoption to Ensue
The analysts at Bernstein expect demand to be driven by “investment advisors, wealth and private banking integrated products, and easier access to ETFs in direct broker accounts.” According to them, this would translate to a 10% ETF share for BTC and ETH market caps and a 5-6% share for crypto hedge funds. Revealing what to expect on the adoption front, Bernstein analysts noted,
“Crypto financial adoption follows hype cycles, and we expect a hockey stick adoption, with 2024 as the landmark regulatory year for approval of ETFs.”
Winter was quite harsh for companies in the hedge fund industry. The collapse of multiple firms in the space over the past 1.5 years has dented investor sentiment. As a result, they started pulling out funds, instigating AUM dips for fund-managing companies.
State of the Crypto Funding Industry
Nevertheless, several companies decided to focus on expanding their empires. Raising funds was one such means adopted, and companies incorporated their own ‘twists’ to the tale. OP Crypto, for instance, raised $100 million for its ‘Fund of Funds’ to back fund managers. In simpler terms, the firm looked to deploy capital into emerging fund managers focused on early-stage crypto investments.
Both fund-managing and non-fund-managing companies are struggling currently when it comes to the funding front. A recent report by Pitchbook revealed that in Q2 2023, crypto companies globally raised $2.3 billion across 371 investment rounds. This marked a 14.7% decrease in QoQ deal value and a 16.3% decrease in the number of deals. According to their analysis,
“This was the lowest amount of capital invested and deals completed since Q4 2020
and represented the fifth consecutive quarter of declining investment activity.”
However, some relief was noted in August, with venture capitalists investing $819 million across 91 companies. This was 51% more than what companies from the space raised in July. At first glance, the numbers might seem appealing, but it should be noted that only a couple of companies are beneficiaries at the moment. August seemed positive because of the $400 million round raised by digital asset exchange Haqqex and the $100 million round raised by crypto custodian BitGo.
Without these two rounds, the aggregate investments in August would have noted a dip when compared to July. Thus, the funding umbrella needs to cover more companies for the industry to thrive as a whole. Plenty of opportunities still exist in the market. According to Pitchbook, mining, stablecoins, and MEV solutions could prove to be emerging opportunities going forward.