ETF Era Could End Crypto Tribalism

What to Know:

• The rise of crypto ETPs (Exchange Traded Products) is reshaping the crypto market, diminishing the importance of tribal loyalties and fostering a unified asset class.
• ETPs are standardizing custody, distribution, and access to various cryptocurrencies under a regulated system, channeling them through the same infrastructure.
• As cryptocurrencies become an income play through staking rewards, investors are shifting their focus from ideological preferences to portfolio construction and exposure management.

The early days of crypto were marked by strong tribalism, with Bitcoin maximalists, Ethereum enthusiasts, and supporters of various altcoins deeply entrenched in their respective camps. These factions often engaged in heated debates over technical merits and ideological underpinnings. However, the emergence of crypto ETPs is starting to reshape this landscape, potentially leading to a more unified and mature asset class. This shift is driven by the standardization of access and infrastructure, prompting a move away from tribal loyalties towards broader portfolio considerations.

The Evolution of Crypto Tribalism

In the nascent stages of the crypto industry, tribalism was rampant. Bitcoin maximalists fervently believed in the primacy of Bitcoin, while Ethereum proponents championed the development of a decentralized internet. Each new blockchain emerged with promises of improvements over its predecessors, boasting faster speeds, lower costs, or enhanced features. These debates extended beyond mere technicalities, delving into fundamental ideological differences. The Proof of Work versus Proof of Stake debate, for example, sparked intense discussions about energy consumption and egalitarianism. The crypto space was a battleground of competing visions, each vying for dominance and adoption. However, the narrative is shifting as Bitcoin transitions from a frontier asset to established infrastructure, attracting institutional interest and high-net-worth individuals.

ETPs: Rewiring Crypto Exposure

The introduction of ETPs has fundamentally altered how investors gain exposure to cryptocurrencies. By standardizing custody, distribution, and access within a regulated framework, ETPs have effectively streamlined the investment process. No longer are investors required to navigate the complexities of individual wallets or exchanges; instead, they can access a diversified range of crypto assets through a single brokerage account. This standardization has significant implications for brand loyalty, as the ease of access reduces the pricing power associated with individual cryptocurrencies. Bitcoin, Ethereum, and even altcoins like Solana, XRP, Dogecoin, and Chainlink now flow through the same infrastructure, utilizing the same custodians, authorized participants, and DTCC rails. This shared infrastructure is attracting a broader range of investors, including institutions, RIAs, and model-portfolio managers, who are increasingly viewing crypto as a mainstream asset class.

Shared Infrastructure for Crypto Assets

Global crypto ETPs have amassed substantial assets under management, with Bitcoin and Ethereum dominating the landscape. However, other cryptocurrencies are following a similar trajectory, leveraging the same infrastructure for custody, clearing, and distribution. This shared infrastructure is not only simplifying access but also fostering greater correlation among different crypto assets. As staking rewards become more prevalent, crypto is evolving into an income-generating asset, further solidifying its place in institutional portfolios. The correlation between Bitcoin and Ethereum has remained consistently high, indicating that most large-cap tokens now trade within the same risk bucket. This correlation is not necessarily indicative of converging fundamentals but rather a reflection of the shared infrastructure that underpins the crypto market.

From Tribalism to Portfolio Allocation

While tribalism will likely persist within the crypto community, its influence on investment decisions may diminish as the market matures. The focus is shifting from which chain is superior to how digital assets should be weighted within a portfolio. In the past, tribalism served as a means of differentiation in a highly speculative market, organizing chaos and fostering a sense of community. However, as crypto transitions into a more mainstream asset class, the emphasis is shifting towards portfolio construction and risk management. The next generation of crypto investors may prioritize overall exposure to digital assets rather than adhering to specific ideological preferences. The evolution of crypto ETPs is a key driver of this transformation, facilitating broader adoption and fostering a more integrated market.

In conclusion, the rise of crypto ETPs is reshaping the crypto investment landscape, moving away from tribal loyalties towards a more unified and institutionalized market. As infrastructure becomes standardized and access is simplified, investors are increasingly viewing crypto as a mainstream asset class, focusing on portfolio construction and risk management rather than ideological preferences. This evolution paves the way for broader adoption and greater integration of crypto into the global financial system.

Related: Bitcoin, Ethereum Gain Backing as Collateral

Source: Original article