Latest cryptocurrency SMA platform shows bullishness about digital assets

The price of bitcoin might be down about 68% from its high last November, but that isn't dampening the enthusiasm among platforms that continue to see digital currencies as the future.

The latest example of this cryptocurrency bullishness is the launch of a digital separately managed account platform by Valkyrie Funds, an asset manager that's been throwing the kitchen sink at crypto investing efforts since it debuted in August 2020.

The Valkyrie offering includes an eclectic mix of exchange-traded funds, hedge funds, venture funds and private trusts, all offering exposure to the crypto space.

Valkyrie’s SMA platform is aimed at financial advisers and offers direct exposure to three different, actively managed cryptocurrency strategies.

There's a bitcoin-only version, a version that blends bitcoin and Ethereum, and a fully diversified version that includes multiple cryptocurrencies.

“These will all be actively managed, and in periods of volatility there will be fairly sizable cash components,” said John Key, managing director at Valkyrie.

The bitcoin and bitcoin-Ethereum portfolios can hold up to 50% cash, and the diversified portfolio can hold up to 60% in cash.

Key cited three main reasons for rolling out the digital currency SMA platform.

“We think the SMA wrapper is attractive because it allows for direct ownership, rather than a derivative product that owns cryptocurrency futures contracts,” he said. “This is pure, clean, simple direct ownership through your adviser.”

The second reason for the platform, Key said, is active management. “We’ve heard clients would prefer for someone to manage the risk for them,” he said. “And the third reason is financial reporting, which is why we partnered with Gemini.”

The crypto SMAs have a $25,000 minimum investment, and the combined management and platform fee is 2.25%.

As part of its pitch, Valkyrie cited the results of a survey earlier this year by Cerulli Associates that showed 45% of financial advisers plan to offer digital assets in response to growing client demand. Furthermore, 80% of advisers said they are being asked about digital assets by clients of all ages, but only 14% of advisers say they are using or recommending digital assets.

Ric Edelman, founder of Digital Assets Council of Financial Professionals, said the digital asset SMA platforms are filling a void.

“In the absence of crypto ETFs, advisers recognize that SMAs offer an effective route to providing clients with exposure to this new asset class,” he said. “Eaglebrook Advisors is the biggest in the space so it’s understandable that others will seek to compete. This is evidence that the trend is toward increased engagement and adoption. It’s bullish for crypto.”

Valkyrie has about $400 million in total assets under management including three ETFs: the $21 million Valkyrie Bitcoin Strategy ETF (BTF), the $3 million Valkyrie Bitcoin Miner ETF (WGMI) and the $600,000 Valkyrie Balance Sheet Opportunities ETF (VBB).