Crypto fund assets may reach $650B in 5 years, according to Bernstein.

Crypto fund assets may reach $650B in 5 years, according to Bernstein.

The Future of the Blockchain Industry: A $650 Billion Market

The blockchain industry is on the cusp of a major transformation, with the potential to reach a staggering $650 billion in assets under management within the next five years. This projection, put forth by broker Bernstein in a recent research report, is predicated on the expected launch of spot-based bitcoin exchange-traded funds (ETFs) in the United States. The arrival of these ETFs is poised to bring a significant influx of capital into the market, propelling the industry to new heights.

At present, the crypto fund management segment of the blockchain industry, often likened to a “cottage industry,” boasts approximately $50 billion in assets under management. While impressive, this represents just 4% of the total market capitalization of the crypto market, which currently stands at $1.08 trillion. However, with the advent of spot-based ETFs, this proportion is expected to undergo a dramatic shift.

Several major players in the financial industry, such as BlackRock, have already filed for spot-based ETFs with the U.S. Securities and Exchange Commission (SEC). Despite delays in the decision-making process, the market is optimistic that the eventual launch of these ETFs will pave the way for mainstream investment by attracting substantial amounts of institutional and retail funds.

Bernstein’s research indicates that the demand for crypto investments is likely to be driven by investment advisors, wealth managers, and private banking integrated products, as well as the easier accessibility of ETFs through direct broker accounts. This implies that bitcoin (BTC) and ether (ETH) could capture a 10% share of the ETF market capitalization, while crypto hedge funds may secure a 5-6% share. These projected figures underscore the transformative potential of the blockchain industry once spot ETFs become a reality.

According to the report, the adoption of crypto financial products and services follows a hype cycle, with significant adoption expected to occur in 2024, which is deemed to be the landmark year for ETF approval. The metaphor of a “hockey stick adoption” is employed, suggesting that once regulatory approval is achieved, the growth of the blockchain industry will experience an exponential surge.

It is important to understand the significance and implications of spot-based ETFs. Unlike futures-based ETFs, which derive their value from underlying futures contracts, spot-based ETFs are tied directly to the underlying assets. This ensures a higher level of transparency and reduces counterparty risks. With spot-based ETFs, investors can gain exposure to cryptocurrencies without directly owning them, making it a more accessible investment vehicle for those seeking exposure to the blockchain market.

In summary, the blockchain industry is poised to undergo a monumental transformation, with assets under management expected to reach $650 billion within the next five years. The launch of spot-based ETFs in the United States is anticipated to drive this growth, attracting capital from institutional and retail investors alike. Investment advisors, wealth managers, and private banking integrated products will play a pivotal role in driving demand for crypto investments. Once regulatory approval for spot-based ETFs is achieved, the industry is expected to experience a “hockey stick adoption,” leading to widespread mainstream acceptance and utilization of blockchain technology.