The landscape of “reputation risk” for financial advisers and institutions allocating to the enigmatic world of cryptocurrencies is undergoing a significant transformation.

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Historically, financial advisers and institutions faced considerable “reputation risk” when delving into the obscure crypto segment. However, this dynamic is shifting as regulatory developments and access tools for the crypto category continue to expand.

John Hoffman, Managing Director at Grayscale Investments, stated, “With the advent of spot Bitcoin and Ethereum ETFs, the risk has, in many ways, inverted.” He elaborated that investors now perceive a potential career and reputation risk if they have not engaged with this asset class. According to Hoffman, clients are increasingly inquiring about cryptocurrencies, more so than ever before.

This sentiment is echoed in a recent OKX report that compiles surveys and executive commentary from a Q2 roundtable in Dubai. The report highlights that asset management and banking customers are increasingly seeking exposure to crypto assets. This shift aligns with institutional recognition of crypto assets’ low correlation with equities and fixed income, positioning them as excellent portfolio diversifiers.

Rams Kanouni, CEO of Capmetric, noted that cryptocurrencies could function similarly to commodities like gold, serving as a hedge against inflation. Additionally, stablecoins are often seen as viable cash alternatives.

Regulatory disclosures in 2023 reveal that institutions ranging from hedge funds to the state of Wisconsin are incorporating Bitcoin ETFs into their portfolios. Hunting Hill Global Capital, for example, increased its exposure to BlackRock and Bitwise BTC funds in Q2. Founder Adam Guren explained that crypto offers high return potential while also mitigating traditional market volatility and enhancing portfolio diversification. Decisions on adjusting holdings will depend on market liquidity, political support for crypto products, and strategic ETF trading opportunities. Evaluations of crypto credit markets will be crucial in these assessments.

OKX’s survey indicates that institutional investors expect crypto holdings to constitute 7.2% of their portfolios by 2027. Currently, crypto allocations range from 1% (conservative) to 10% (aggressive), consistent with financial advisers’ feedback from a few months ago.

For those less interested in specific crypto assets, the impending boom in real-world asset tokenization might be more appealing. Approximately one-third of hedge funds identified tokenization as the most significant future market opportunity in a 2023 survey. Financial giants like BlackRock and Franklin Templeton already offer tokenized money market funds, with others like State Street poised to enter the segment.

Institutions view digital assets as inevitable, with securities, bonds, and central bank digital currencies being tokenized on the blockchain, according to OKX Chief Commercial Officer Lennix Lai. He emphasized that regulatory clarity is crucial for further institutional adoption.

Jagadeshwaran Kothandapani of Citi Services questioned whether fiat currencies operating as tokens on distributed ledger technologies would be classified as currencies or assets for regulatory purposes. The timeline is also a critical factor. Lai noted participants’ confidence in the rapid advancement of this revolution.

SkyBridge Capital founder Anthony Scaramucci predicted that mainstream consumers would seamlessly transact on blockchains within the next decade, often without realizing it.

Meanwhile, US spot ether ETFs have experienced consecutive days of net outflows. Investor capital has mainly exited from the higher-priced Grayscale Ethereum Trust (ETHE), while competing products haven’t fully compensated for this leakage.

Conversely, US Bitcoin funds have seen net inflows during eight of the last nine days. The highest outflow streak for the spot BTC segment was seven days, occurring twice this year.

Further education on Ethereum among financial advisers and institutional investors is likely to be a catalyst for reversing these outflows post-summer.

This afternoon’s major economic event: NVIDIA’s Q2 results. NVIDIA has been a standout winner in the AI boom, with shares up 158% year-to-date and nearly 2,900% over the past five years. Analysts consider it the most crucial stock globally. Today’s earnings will either bolster or challenge the AI narrative. Given NVIDIA’s significant presence in the S&P 500, its earnings will impact tech stocks and beyond.

NVIDIA has posted triple-digit revenue growth over the past three quarters. Analysts expect a 112% revenue increase this past quarter, slower than earlier in the year. Key figures from today’s earnings call will include executives’ forecasts for next quarter, with AI capability demand being vital for sustained growth.

Noelle Acheson, author of “Crypto is Macro Now,” remarked that good news seems anticipated; bad news does not yet seem priced in.

Markets have largely recovered from declines due to Japanese interest rate concerns and US job market issues earlier this summer. NVDA shares were trading around $124 at 2 pm ET Wednesday, down from about $136 in July.

Good luck to NVDA holders—and anyone holding any assets.

Russia is preparing to test crypto exchanges and cross-border crypto payments starting Sept. 1. This move follows international sanctions complicating payment facilitation for Russian businesses. In June, US officials announced stricter restrictions on foreign banks aiding Russian payment settlements. Subsequently, Russia’s parliament passed bills legalizing crypto mining and paving the way for cross-border payment testing under the central bank’s oversight.

OFAC maintains that US sanctions apply to cryptocurrency activities, according to Steptoe & Johnson attorney Evan Abrams. Concerns persist about Russian entities potentially using cryptocurrencies to evade sanctions imposed by the US and other nations.

Industry experts suggest that Russia’s move into crypto could have broader implications beyond sanctions evasion. Chris Perkins, President of CoinFund, stated that America faces a choice: allow adversaries like Russia to lead in adopting emerging technologies like crypto payments or pass principles-based stablecoin policies to improve the system and enhance national security.

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