Trends Watch: Crypto Investing Opportunities & Challenges

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Alyssa Choo, Crypto Equities Specialist, Bitwise Asset Management.  

What is your outlook for investing in crypto?

It’s an incredibly exciting time for crypto. The industry has recovered from market lows. Multiple asset managers received approval for spot bitcoin ETFs and filed for spot ether ETFs. The regulatory environment is mixed, with continued negative headlines in the U.S. offset by strong regulatory progress in Hong Kong, Europe and the Middle East. 

Something interesting about crypto is that it has historically moved in four-year cycles, driven by major product breakthroughs. We think the groundwork is laid to make crypto’s fourth cycle its biggest yet: The cycle where crypto goes mainstream. This is epitomized by the June 2023 decision by BlackRock — the world’s largest asset manager — to file for a spot bitcoin ETF. It wouldn’t do this if it did not think bitcoin was becoming a mainstream asset. In my view, crypto is not going away. Its long-term prospects are better than ever. Still, investors who are allocating should be prepared for the possibility of volatility along the way. 

Where do you see the greatest opportunities and why?

There has been strong technical progress on multiple blockchains. Blockchain scaling solutions (known as “layer 2s”) are growing quickly. Layer 2s are secondary frameworks or protocols that are built on top of an existing blockchain system. The main goal of these protocols is to solve the transaction speed and throughput constraints. An example of this is the Bitcoin Lightning Network. The Lightning Network is a layer-2 protocol designed to enable off-chain bitcoin transactions, which are ultimately settled on the bitcoin blockchain. Lightning payments are extremely fast and cheap. This means crypto can scale to tens or hundreds of millions of users. 

Another opportunity is “asset tokenization” which is the use of smart contracts and blockchain technology to represent ownership or rights to an asset as a tradable, on-chain token. Though it's commonly known as tokenization of financial or fungible assets, such as shares in a company or other financial securities, asset tokenization can also refer to the tokenization of anything possessing monetary value. Last month, BlackRock unveiled its first tokenized fund issued on a public blockchain, the BlackRock USD Institutional Digital Liquidity Fund, which enables the issuance and trading of ownership on a blockchain, expanding investor access to on-chain offerings, providing instantaneous and transparent settlement. In general, tokenized assets benefit from permissionless liquidity, open access, on-chain transparency, and reduced transactional friction compared to traditional assets.

What are the greatest challenges you face and why? What keeps you up at night? 

The SEC’s approval of the spot bitcoin ETF was a huge unlock as investors can now access bitcoin’s price moves though regulated means. However, governments are still grappling with how to regulate the industry. Regulatory clarity is critical for wider adoption as it would give both builders and investors guidelines on what they can and can’t do, and it could potentially usher in even more institutional investors into the space. The lack of clear regulations could inhibit mainstream adoption and investment, running the risk of pushing innovation outside the U.S. 

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.