Can State Street make up ground in the crypto ETF arena?

ETF powerhouse State Street Global Advisors is finally entering the crypto ETF arena as it looks to make up ground in the sector by offering differentiated products.

While SSGA certainly has the brand recognition to compete with rivals, investor appetite for the type of funds it plans to offer remains to be seen.

The $4 trillion-plus asset manager said last week it would be linking up with crypto-focused Galaxy Digital to launch “the next generation of digital asset-based strategies.”

Read more: On the Margin Newsletter: Crypto ETF filings are only ramping up

An initial proposed SPDR Galaxy Digital Asset Ecosystem ETF, for example, would invest in crypto equities and futures contracts, as well as in ETFs that hold spot crypto or futures.

Neena Mishra, director of ETF research for Zacks Investment Research, said it’s difficult to predict the demand for such a fund given recent trends.

“This year, investors totally ignored crypto-related ETFs despite their excellent performance, while piling into spot bitcoin ETFs,” she told Blockworks. “This makes sense, as they had been waiting for pure crypto exposure via ETFs for many years.”

Indeed, the US spot bitcoin ETFs that began trading in January have so far tallied net inflows of roughly $14.5 billion, Farside Investors data shows.

Meanwhile, the Amplify Transformational Data Sharing ETF — among the first and largest ETF holding blockchain- and crypto-adjacent equities — has seen nearly $600 million of outflows year to date.

Still BLOK, which launched in 2018, manages about $700 million in assets.

“The proposed [SSGA] fund is actively managed and will adjust its exposure based on macroeconomic conditions; I expect it to be very competitively priced,” Mishra said. “If the product impresses investors with its performance and limits volatility, I won’t be surprised to see the State Street product catching up with BLOK.”

A planned Hedged Digital Asset Ecosystem ETF would be similar to the first fund, but may also invest in covered call options and protective put options on investments held in the portfolio, the Wednesday filing noted.

Additionally, a proposed Emerging Technology Enablers ETF would invest in companies focused on novel tech like blockchain and AI. These may include bitcoin miners and device manufacturers, as well as energy and infrastructure companies.

“We believe that the digital assets landscape is so much more than the single crypto components and that crypto native companies are best equipped to understand that ecosystem and its correlation with financial markets,” SSGA Chief Business Officer Anna Paglia said in a statement.

So far on the crypto ETF sidelines

Custodial giant State Street is well acquainted with the crypto ecosystem. It launched a digital finance unit in June 2021 and entered into a licensing agreement with Copper.co the following year to develop a digital custody offering for institutions.

State Street Bank and Trust plan to offer administrative and accounting services for the new crypto ETFs it develops with Galaxy.

Read more: State Street Sees ‘Significant Opportunity’ in Tokenization

State Street Global Advisors — ranking third in US ETF assets under management — launched the industry’s first ETF, the SPDR S&P 500 ETF (SPY), in 1993. It offers the largest physically-backed ETF focused on gold, an asset bitcoin is sometimes compared to.

But despite its status as an ETF pioneer, SSGA did not join other firms in launching a spot bitcoin ETF in January. Net inflows into those funds so far total $14.5 billion, with State Street rivals BlackRock and Fidelity seeing the bulk of those.

“We continuously evaluate our lineup of ETFs, and at this time we do not offer a crypto ETF,” a State Street spokesperson told Blockworks earlier this year, declining to comment further.

Read more: Big ETF players remain on the sidelines amid possible milestone bitcoin fund approval

SSGA was also not among the issuers that filed for a spot ether ETF. Those funds could gain clearance to lead in the coming weeks, if not days.

With SSGA’s latest announcement, Vanguard is essentially the only asset management titan still showing no interest in crypto, in any form. The firm has called the investment case for crypto assets weak, adding that such products don’t fit in “a well-balanced, long-term investment portfolio.”

And yet, financial advisers and other institutional investors are allocating to them.

Ric Edelman, founder of the Digital Assets Council of Financial Professionals, has said big investment firms not offering crypto ETFs are likely to change their minds as demand for BTC and ETH grows.

Mishra agrees that just because SSGA has not yet entered that arena doesn’t mean they never will.

“State Street has taken a cautious approach to entering the digital assets space,” she said. “But I wouldn’t be surprised to see them file for spot crypto ETFs in the future.”

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