Crypto ETFs Expected to Enter ‘Model Portfolios’ by Year-End

According to insights from BlackRock, digital currency-backed exchange-traded funds (ETFs) are anticipated to be incorporated into model portfolios by the end of 2024. This information comes from Samara Cohen, BlackRock’s chief investment officer for ETFs.

Insights from Samara Cohen

During an interview, Cohen discussed the current activities of major financial institutions such as Morgan Stanley, Wells Fargo, and UBS regarding their adoption and promotion of crypto ETFs. She highlighted that these firms are presently engaged in:

• Risk analytics
• Due diligence
• Assessing the roles of Bitcoin (BTC) and Ether (ETH) in their investment strategies

“What will happen toward the end of this year and into next year is we will see allocations into model portfolios, which will give us much more of a steer into how investors are using them.”

Understanding Model Portfolios

Model portfolios are pre-designed investment strategies offered by large brokerage firms, aimed at providing a diversified approach to risk and return based on a clear strategy. They serve as templates or “recipes” for investors looking to establish effective investment allocations.

BlackRock projects that the value of model portfolio management will rise from $4.2 trillion currently to $10 trillion over the next five years.

The Future of Crypto in Portfolios

Earlier this month, Salim Ramji, who leads iShares and index investments globally at BlackRock, stated the significance of model portfolios, explaining that they are becoming the preferred method for fiduciary advisers. He emphasized:

“It’s going to be massive. It’s the way in which more and more fiduciary advisers are doing business, and, as a result, that’s the way in which we’re doing business with them.”

Cohen further elaborated on the distinct roles that Bitcoin and Ether play as asset classes, noting their value as portfolio diversifiers.

Market Reactions to Ether ETFs

Addressing the recent net outflows from Ether spot ETFs since their launch, Cohen expressed that she remained optimistic due to the strong initial response, viewing these ETFs as crucial access points for investors aiming to include ETH in their portfolios.

Despite the significant outflows from higher-priced funds, including the Grayscale Ethereum Trust (ETHE), Cohen remarked that investor interest remains strong:

“Investors really want to get their ETH exposure, especially if they’re going to use it in the context of an overall portfolio in an ecosystem they have confidence in.”

Since its conversion to a spot ETF, the Grayscale Ethereum Trust has experienced substantial outflows totaling $1.7 billion. However, some of this capital has been redirected into its no-fee Ethereum Mini Trust (ETH).

Recent data indicates that Ether spot ETFs have faced four consecutive days of outflows with only one day of inflows since their launch.

No Immediate Future for Altcoin ETFs

Cohen confirmed that there are minimal prospects for a spot ETF for altcoins like Solana (SOL) in the near future. This sentiment was echoed by Robert Mitchnick, BlackRock’s head of digital assets, who stated at the Bitcoin 2024 Conference:

“I don’t think we’re gonna see a long list of crypto ETFs.”