Cryptocurrencies and ETFs Await Regulatory Clarity, Says Franklin Templeton

As soon as cryptocurrencies receive a clear regulatory framework in the United States, they have potential to become an integral part of investors’ portfolios, according to Sandy Kaul, head of digital asset and industry advisory services at Franklin Templeton. Despite being able to buy crypto directly, there are few ways for digital assets to be included in conventional portfolios. BlackRock, the world’s biggest asset manager, recently filed a request for a bitcoin-backed exchange-traded fund (ETF) with the US SEC. Following this move, Invesco, WisdomTree, Valkyrie, and Bitwise also submitted applications to launch similar products.

The SEC has sanctioned several bitcoin futures-based ETFs previously but is yet to approve anything backed by bitcoin itself. If a spot bitcoin ETF is approved, it could provide “a new access point where crypto can move into traditional portfolios and really start to offer a new type of asset class to diversify the portfolio,” explained Kaul in an interview.

Moreover, Kaul is anticipating more explicit guidelines from US regulators. Whilst some regulators believe that current laws are adequate for crypto, they are not providing a transparent way to employ these laws which leaves people with an unsatisfying impression that the present law is not sufficient. Kaul noted that regulators are leaving too much ambiguity in the system. “If the SEC could clarify which crypto can be registered as US securities, then we can include them in broader portfolios,” she added.

Ethereum as a Software Development Platform

According to Kaul from Franklin Templeton, Ethereum can be viewed as a software development platform and can be included in a portfolio along with traditional companies that are also in software development. This allows for a comparison of their growth in market share against other companies in the sector. Franklin Templeton’s OnChain US Government Money Fund, whose shares are recorded on a blockchain, has also seen increased interest from clients. The fund now manages over $290 million in assets as of the end of May.

Interest in OnChain Government Money Market Funds

Initially designed to exploit the operational efficiencies of blockchains, Franklin Templeton’s OnChain government money market funds have seen increased interest following the Federal Reserve’s series of interest rate hikes. The fund’s seven-day effective yield went up to 5% on Monday, from 0.15% on March 31,2022. The Fed has raised its target funds rates to the range of 5% to 5.25% from 0% to 0.25% in March, 2022.

Established Entities vs Crypto Organizations

After the SEC sued crypto exchanges Binance and Coinbase, some speculated that U.S. regulators may be favoring established Wall Street firms while acting against crypto native companies. However, Kaul from Franklin Templeton doesn’t think this is the case. She believes that established entities have a pre-existing relationship with the SEC, allowing them more ability to get insights into what the SEC is thinking. Many of these crypto organizations lack these relationships.

Bitcoin’s Performance

Bitcoin has rallied over 80% so far in 2022 to above $30,000. However, it is still down more than 50% from its all-time high in 2021, according to CoinDesk data.

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