By Frances Yue
According to Franklin Templeton, who manages over $1.4 trillion in assets, cryptocurrencies can become "regular parts of people's wallets" once regulations are clear in the United States.
While investors can now buy crypto directly, they have limited ways to include digital assets in traditional portfolios, said Sandy Kaul, head of digital assets and industry advisory services at Franklin Templeton.
Earlier this month, BlackRock (BLK), the world's largest asset manager, filed an application with the US SEC for a bitcoin-backed exchange-traded fund. Subsequently, Invesco (IVZ), WisdomTree (WT), Valkyrie and Bitwise also applied to issue similar products.
The SEC has approved several ETFs based on bitcoin futures in the past, but has yet to greenlight anything backed by bitcoin itself.
If a spot bitcoin ETF is approved, it could open "a new entry point where crypto can enter traditional portfolios, and really start to offer a new kind of asset class to diversify the portfolio," he said. Kaul in a phone interview.
Kaul said she expects more regulatory clarity from U.S. regulators. While some regulators have said that the existing laws are adequate for crypto, "they don't provide guidance on how to use the existing law, which gives people the impression that the existing law may not be not be adequate. I think [regulators] they leave too much uncertainty in the system,” Kaul noted.
If the SEC could clarify which cryptos can be registered as US securities, "we can include them in broader portfolios," Kaul said.
“If you think of Ethereum as a software development platform, then we could put Ethereum in a portfolio with traditional companies that are also engaged in software development. We can then put them in the sector funds where they match the better, and we can benchmark their growth in market share against other companies in this industry,” according to Kaul.
Kaul added that Franklin Templeton's OnChain US Government Money Fund, whose shares are registered on a blockchain, has seen increased customer interest. The fund now manages over $290 million in assets as of the end of May.
"Originally the goal was to really harness the operational efficiencies of blockchains," Kaul says, 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 government OnChain money market funds."
The fund's seven-day effective yield rose to 5% on Monday from 0.15% on March 31, 2022. The Fed raised its target fund rates to a 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 US regulators may favor established Wall Street firms while acting against native crypto firms.
However, Kaul said she doesn't think that's the case.
"I think established entities have a pre-existing relationship with the SEC, so that gives them more opportunity to get insight into what the SEC is thinking, whereas a lot of these crypto organizations don't have those relationships," Kaul said.
Bitcoin is up more than 80% so far this year to surpass $30,000, while still down more than 50% from its all-time high in 2021, according to data from CoinDesk.
-Frances Yue
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06-29-23 1633ET
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