WisdomTree Investments and Ritholtz Wealth Management, one of the most high-profile RIAs, have partnered to create a cryptocurrency index. The companies revealed the collaboration on Friday and said they’ve licensed the index to a portfolio management system, making it easier for financial advisors to invest in the growing asset class.
The 13-coin RWM WisdomTree Crypto Index is designed to give investors diversified exposure to crypto and “present unique growth opportunities,” according to a brochure. Bitcoin, the most popular cryptocurrency with a market cap more than $1 trillion, is the heaviest weighted, at 36 percent. Ethereum is weighted 24 percent, and 11 other coins are each weighted 4 percent.
The index currently captures approximately 64 percent of the total crypto market cap. It will follow a modified market capitalization weighted approach, allowing the weights to fluctuate in line with market movements.
The coins chosen by WisdomTree and Ritholtz Wealth Management cover a mix of themes. Some coins (bitcoin, Terra and Fantom) give investors exposure to what are called layer-1 networks, or blockchains that support decentralized digital systems. Other coins give investors exposure to crypto indexing services (The Graph), or decentralized finance (SushiSwap), and other themes.
An index committee will regularly review the exposures as new cryptoassets become eligible for trading and custody, and as the market evolves. The wealth manager’s leadership, including CEO Josh Brown, co-founder and CIO Barry Ritholtz, director of research Michael Batnick, and director of institutional asset management Ben Carlson, have all personally invested in the index. Several other financial advisors and employees at the advisory firm are also invested in the index, the firm said in a statement.
Financial advisors will only be able to use the index through Onramp Invest, a crypto-focused portfolio management system that enables them to create separately managed accounts. Gemini, a crypto broker and custodian founded in 2014 by brothers Cameron and Tyler Winklevoss, supports Onramp.
Investors pay a transaction fee as low as .35 percent to buy coins through Onramp, substantially less than the 1 percent or more that most crypto brokerages charge.
Both WisdomTree and Ritholtz Wealth Management were seed investors in Onramp and stand to make money from their new index.
Investors pay a .50 percent annual licensing fee to use the index and that revenue will be shared by WisdomTree and Ritholtz Wealth Management. Batnick declined to share details about how the revenue was split. Ritholtz Wealth Management’s clients who invest in the index will not be charged the firm’s advisory fee on their cryptoassets under management, Batnick told RIA Intel.
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Some clients of the advisory firm were already invested in crypto or wanted to invest in it. But, until recently, it couldn’t do much more than advise them on how to open an account at a brokerage and invest in crypto on their own. Batnick said the wealth manager sent a letter to clients notifying them that the firm created the index but it is not actively advertising it to clients.
Most financial advisors don't invest any client money in crypto, but “it’s not going away,” Batnick said about the asset class, and wealth managers need more investment solutions.
The advisory firm was contemplating its own index and when it shared the idea with acquaintance Jeremy Schwartz, global chief investment officer at WisdomTree, they learned the $76.4 billion asset manager was doing the same thing. WisdomTree has been studying crypto for a while, Schwartz told RIA Intel. Since both companies were invested in Onramp, partnering on the index was an obvious choice.
“In our view, this direct indexing implementation of the RWM WisdomTree Crypto Index via Onramp Invest and Gemini is the best assembled structure and diversified cryptoassets exposure currently available to U.S. investors and particularly the RIA community,” Schwartz said.
Building crypto sleeves with the index is not just a placeholder solution for investors until the Securities and Exchange Commission approves a crypto ETF, Schwartz and others said. It is easier to invest in a fund (it might already be available on a platform that a wealth manager uses). But if an ETF is approved, the exposure might not be what investors are really seeking. For example, many ETFs seeking regulatory approval only track the spot price of bitcoin. In October, the ProShares Bitcoin Strategy ETF, that tracks futures contracts, debuted with mixed opinions. “A lot of the crypto people do want to hold the assets directly,” Schwartz said.
The expectation is that the need to appease clients, and the return potential of cryptoassets, will be enough to convince wealth managers to establish a relationship with another custodian and learn a new trading platform.
“It's too small of a problem to want to build it in house, but it's too big of an opportunity for it to kind of go untouched. We just kind of came in [with] technology so everyone will have access to it,” Eric Ervin, co-founder and CIO at Onramp Invest, told RIA Intel.
Ervin is also the founder and CEO of Blockforce Capital, a blockchain and cryptocurrency industry investment firm formerly called Reality Shares.
Onramp expects the index will be available to other RIAs and individual investors in the first quarter of 2022.
Like New York-based Ritholtz Wealth Management, Batnick said other RIAs will need or want the solution the index and Onramp are able to provide, and it was eager to help other advisors and investors.
“I think that a lot of advisors have been in a wait-and-see mode and have been waiting for somebody to bust the doors off the barn,” Batnick said.
Other platforms are emerging to help advisors invest in crypto. In September, Flourish, a technology company best known for its cash management solution, launched Flourish Crypto, a platform where RIAs can custody, trade, and directly manage cryptocurrencies on behalf of clients. Last year, Two Ocean Trust became a qualified custodian allowed to service traditional and crypto assets.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.