Widespread adoption of and investment in cryptocurrencies has arguably been the asset classes’ number one pain point for years. While in many respects, things have come a long way, there’s still quite a bit of infrastructure that needs to be built in order to make widespread adoption and investment practical.
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Earlier this week, Finance Magnates reported on a new partnership between two companies working to make crypto more accessible to a key group of investors that are often overlooked in the crypto world: GenXers and Baby Boomers, who together control nearly 80 percent of the wealth in the United States.
Indeed, Galaxy Digital Holdings Ltd., the cryptocurrency merchant bank founded by billionaire Mike Novogratz, has partnered with alternative investments platform CAIS to provide financial advisors with streamlined access to Galaxy Digital Asset Management’s investment products.
The partnership, which will also include access to educational resources spanning blockchain and digital assets, aims to awareness and knowledge of blockchain and digital assets at a critical time for financial advisors–who, according to Galaxy and CAIS, are experiencing increased client demand for crypto-related products.
Recently, Finance Magnates sat down with Mike Novogratz and Matt Brown, founder and CEO of CAIS, to discuss the partnership and their hopes for how it could transform the cryptocurrency landscape.
This interview is an excerpt of a longer conversation with Matt Brown and Mike Novogratz. It has been edited for clarity and length.
The financial advisor space is crypto’s “big fat pitch”
Mike Novogratz and Matt Brown described the partnership between Galaxy Digital and CAIS as a marriage of mutual interests–to provide financial advisors with more information and access to cryptocurrencies and Bitcoin.
“We understood at Galaxy that we didn’t have a reach into the retail space,” Mike Novogratz explained, adding that Galaxy does invest in a number of wallets and exchanges that mostly deal with retail users. However, “looking at who’s going to adopt–and who needs to adopt–crypto next, and Bitcoin next, the financial advisor space is the ‘big fat pitch.’”
Indeed, Novogratz believes that it’s important to bring financial advisors into crypto because “the bulk of the wealth in America is held by 58-year-olds,” he continued. “It’s held by GenX and the baby boomers, not by millennials and GenZ.”
When it comes to crypto, these GenX and baby boomer investors “haven’t rushed in yet,” Novogratz continued, adding that “we don’t think they’re going to rush in.” Instead, “we think they’re going to need to be educated” before they are willing to gain exposure to the crypto space.
This is where “CAIS is perfectly aligned with [Galaxy Digital],” he continued. “They have a great educational platform, and their connectivity to this giant pool of financial advisors who will advise on most of the wealth of the country.”
Notably, in November 2019, Galaxy also created two Bitcoin-based funds named the Galaxy Bitcoin Fund and the Galaxy Institutional Bitcoin Fund–aimed toward “the wealth of America”–wealthy individuals between 50 and 80 years of age who may have been wary of investing in crypto in the past.
”The drumbeat around the [cryptocurrency and blockchain] space has been rising.”
Matt Brown explained that the journey towards the partnership began when “we got connected [with Galaxy] a little bit over a year ago.”
“[Galaxy’s] approach, the way they think about the infrastructure–the plumbing, the piping, the checks, the balances–really resonated with our approach,” he continued.
And the partnership was particularly timely: “over the years, the drumbeat around the [cryptocurrency and blockchain] space has been rising,” Matt Brown said.
“As a platform, we’ve always tried to be accommodating to the themes and products that our community wants to buy–to a very large degree, we have to be agnostic; we’re not telling them what to buy, we’re creating a market place where they can go and get what they want.”
Indeed, CAIS’s platform acts as a two-sided marketplace that connects financial advisors with alternative investment products; in other words, financial advisors can use CAIS to gain access to non-traditional financial asset classes.
@CAISGroup CEO Matt Brown (middle) discusses the needs of Independent financial advisors with Sean Mullen of @AdvicePeriod (left) and Matt Ackermann of @newsfromIN (right) – @MarketCounsel Summit 2017 #MSUM17 pic.twitter.com/ru3M5dlbS7
— CAIS (@CAISgroup) December 6, 2017
This is why he founded Galaxy Digital in the first place: “Galaxy started with a mission to be a bridge between the crypto universe and the institutional world,” Novogratz began.
“This is a real moment for [wealth managers] to look at [crypto] as an asset class.”
Matt Brown pointed out a similar phenomenon: “the buyers of cryptocurrency right now tend to be the younger generation, and its more of a B2C play,” he said.
“Financial advisors are professionals who have the critical role of protecting and growing wealth for a huge swath of the US population–there’s about $20 trillion to $24 trillion dollars currently being managed by wealth management.”
“This is a real moment for that community to look at this as an asset class and really understand the best way to implement it as asset allocation.”
Brown added that there are four primary reasons that asset managers have not allocated in the cryptocurrency space: “access, education, due diligence, and execution”–but both Brown and Novogratz are hoping that their partnership will address each of those four pain points.
The inevitability of crypto
Therefore, when we asked whether or not it seems likely that 80 percent of institutional investors will have exposure to cryptocurrencies in their portfolios within the next five years, as Huobi’s Ciara Sun predicted in an interview with Finance Magnates earlier this week, Novogratz said yes.
“Besides Bitcoin becoming a proxy for gold, there’s a digital revolution going on, and payments are going to shift over, in time. There will be a ‘crypto dollar’, just like there’ll be a ‘crypto yuan’ and a ‘crypto euro’…I think every portfolio will have crypto in it.”
Citing conversations with institutional investors that he’s had with leaders of financial institutions in the US, Novogratz said that “[…] even the guys that aren’t in yet, they all realize that there’s an inevitability that we’re going to end up with a lot of crypto assets. It’s a question of when.”
“So, if you’re a big bank, you might miss the first three chapters, because there’s not enough money to be made, and get in for chapter four,” he added. Right now, “we’re on chapter two.”
“So, the reason that I think there’s a lot of upside is that I know there are nine chapters in the book coming after us.”
This interview is an excerpt of a longer conversation with Matt Brown and Mike Novogratz. It has been edited for clarity and length. Special thanks to Matt, Mike, and the teams at CAIS and Galaxy Digital.