Cerulli: Increased Volatility Cools European Investor Interest in Crypto Funds

Opalesque Industry Update – Despite the painful setbacks suffered by cryptocurrencies, fund innovation – including the development of products to track a more diverse basket of coins – is set to continue, according to the latest issue of The Cerulli Edge-European Monthly Product Trends.

Cryptocurrency prices have retreated due to sector-specific challenges and broader economic concerns negatively affecting risky assets, particularly in technology and other high-growth segments, notes Cerulli Associates.

Assets under management in cryptocurrency exchange-traded products in Europe topped €10 billion ($10.5 billion) in 2021, according to Morningstar data, propelled by rising prices and a surge in launches. Nevertheless, market volatility is weighing on investor sentiment. “The increased volatility in the sector has deterred investors, especially large players constrained by strict risk models,” says Fabrizio Zumbo, director of European asset and wealth management research at Cerulli.

This is not the first time the cryptocurrency sector has shown a boom-bust streak. For example, the price of Bitcoin fell almost 65% at the start of 2018 after a bumper year in 2017, which saw the asset return investors over 1,300%.

That said, Cerulli’s research indicates that much of the space activity in Europe has so far been dominated by retail investors. “Cryptocurrency is increasingly coming up in conversations with financial advisors, particularly wealth managers and family offices serving high net worth individuals,” Zumbo says.

The universe of cryptocurrency funds in Europe has been occupied by smaller managers executing niche strategies. However, some managers have launched equity-based thematic products targeting companies that could benefit from the growing use and application of blockchain, the digital infrastructure that underpins the cryptocurrency market.

For many investors in Europe – a hot spot for considering and implementing environmental, social and governance (ESG) factors – the amount of energy that cryptocurrency companies use to maintain their operations constitutes a major concern. In response, some cryptocurrency platforms have sought to address ESG concerns through various means, including adopting a significantly more energy-efficient consensus algorithm, but at the cost of some decentralization.

“The outlook for the cryptocurrency market remains uncertain, at least in the short term,” Zumbo says. “Cerulli expects several managers and investors across Europe to remain on the sidelines, seeking to better understand the sector under current risk-free market conditions and awaiting greater regulatory clarity before making any investment decisions. take action. However, we expect product innovation to continue.”

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