Hi readers, In today's newsletter, EY-Parthenon's Prashant Kher shares the results of a survey which uncovers institutional investor sentiment and planned adoption of digital assets.
Then, Connor Farley of Truvius writes about how systematic moves can unlock tax savings for direct index-style crypto portfolios.
Thanks for joining us. |
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Investor Survey Reveals Innovation Drives Demand for Digital Assets |
EY-Parthenon and Coinbase conducted a survey of more than 350 institutional investors globally in January of 2025. While regulatory clarity will loom large over developments in the digital assets landscape in 2025 — investors in the survey called it the #1 catalyst for growth — the survey illustrated underlying enthusiasm and an appetite for innovation that will drive the market forward. Both institutional and retail investors are seeking new crypto-powered products and services to generate yield, provide access to credit and lending services, conduct cross-border payments, instantly clear transactions and grow long-term wealth. As the ecosystem matures and continues to take shape, we will see traditional finance (TradFi) firms leverage decades of experience and reputations to securely offer new investment vehicles and products to clients. A friendlier regulatory backdrop will enable digital natives to innovate more quickly, pushing decentralized finance use cases forward by catering to both progressive clients and a new generation of financial customers. |
Investors want more digital assets and more options Of investors surveyed, 87% plan to increase overall allocations to crypto in 2025, spanning a variety of options such as exchange-traded products (ETPs), investments in digital asset companies, stablecoins, futures and thematic mutual funds. While many said they prefer to get their exposure to crypto through registered vehicles such as ETPs, there's also interest in expanding custody services to offer and hold spot crypto directly. Per the survey, 55% hold spot crypto through ETPs, with 69% of those who plan to own spot crypto planning to do so using registered vehicles. Earlier in 2024, some of the bitcoin ETPs became the fastest growing ETPs across a spectrum of altcoins, including solana (SOL) and ripple (XRP). |
New innovation with stablecoins and tokenization Institutional investors look to opportunities to power new payment platforms and enjoy rewards through staking and yield generation. Eighty-four percent of investors surveyed said they are using or plan to use stablecoins, with Tether (USDT) and USD Coin (USDC) being the top two preferred coins. Stablecoins promise to make clearing instantaneous, modernizing and reducing risk in foreign currency exchange, cash management and a host of other use cases. |
Tokenization further promises to democratize access to investment options for the retail investor and provide new sources of capital for institutions. More than half of investors surveyed plan on investing in tokenized assets. The ability to diversify investments with a greater level of precision with fractional ownership and lower minimums will bring greater opportunities and improve risk management. At the top of investors' wish list for tokenization are alternative assets such as real estate, private equity, private credit and even commodities such as gold and oil. These are investments typically reserved for institutions or ultra high net worth clients, which through tokenization can be available to new retail investors. Innovation has always driven Wall Street forward. There is an expectation from investors that digital assets will not only move into the sphere of mainstream customer experience, but also provide new opportunities to participate in a growing decentralized financial system. Anchored with the backdrop of a friendlier regulatory stance on crypto in the U.S., investors globally expect new products and services to accelerate a renaissance in digital assets. |
Note: The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization. |
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Tax-Loss Harvesting for Multi-Asset Crypto Portfolios: A Primer |
The digital asset class is highly technical. Powered by blockchain technology and globally traded 24/7, digital asset markets are fast-moving and awash in data. A systematic investment approach may lend itself well to such a market. Systematic investing can also unlock a critical and particularly well-suited feature for multi-asset crypto portfolios: automated tax-loss harvesting. What is tax-loss harvesting (TLH)? Investors buy assets they expect to appreciate over time, but markets ebb and flow, and no asset perpetually rises without experiencing some losses along the way. Sometimes, investors hold assets at a loss. When investors hold one or more of their assets at a loss, they can sell the depreciated asset(s), realize the loss and use those realized losses to offset realized gains or ordinary income. Simultaneously, investors re-invest the proceeds from selling the depreciated assets to purchase similar assets (e.g., selling Home Depot stock and re-purchasing Lowe's stock), thus also generally maintaining their original portfolio exposure. The outcome? Investors pay less in taxes at the end of the year while still maintaining their exposure — deferring near-term tax obligations and getting to keep more invested today for greater long-term compounded growth. Why automated? Software and algorithms are better suited to systematically exploit tax-loss harvesting (TLH) opportunities vs. manual human involvement. To effectively harvest losses, investors need to track their cost basis and purchase dates and perform the requisite trading across all of their holdings — all tasks that are more effectively handled by a mechanical process, especially when scaling up this technique for multi-asset portfolios with dozens of digital assets. When does TLH work best? TLH is a systematic technique that allows investors to get more from their holdings. Large, diversified liquid portfolios lend themselves well to this technique since investors can easily trade the underlying assets and replace assets with similar ones (ex: selling Coca-Cola stock and replacing it with Pepsi stock). The same is true for crypto markets — portfolios with dozens of digital assets generally have greater TLH flexibility compared to single-asset holdings or portfolios with only a small number of digital assets. In fact, this tax-savvy investing technique may work particularly well for crypto assets, which exhibit relatively higher volatility compared to other asset classes like equities and fixed income. While crypto's volatility may deter some investors, TLH provides a silver lining. When doesn't TLH work? Since TLH requires re-establishing one's cost basis by selling and replacing individual assets, there are several investment choices that may not be as well-suited to TLH: |
- Exchange-traded funds (ETFs). An ETF represents a single holding. If an investor purchases an S&P 500 ETF, for example, that holding either represents a loss or it doesn't, and there is no flexibility to trade the underlying stocks. If an investor instead individually purchased all 500 stocks in the S&P 500 index, they can now enact a TLH program where they can sell certain assets and re-invest in similar ones. This is a meaningful drawback to current crypto ETFs, which face the additional problem of usually only being composed of a single asset and suffer from a lack of diversification.
- Single-asset investments (e.g., BTC or ETH only) or a small number of holdings (e.g., only 2-3 assets). In traditional markets, TLH can't be used with single-asset holdings since there would be no "replacement" asset. The wash rule prevents investors in TradFi markets from selling and re-purchasing the same asset solely to claim a loss and achieve a tax deduction. Currently, however, the wash rule doesn't exist for crypto. This absence is something crypto investors can therefore still exploit and still achieve TLH benefits with only one or a few assets, but this situation may not persist forever. More specifically, its absence is primarily the result of a lack of regulatory oversight and is not necessarily intentional.
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How do investors get started? Investors can use direct-index crypto separately managed accounts (SMAs) from crypto SMA managers to access liquid, actively managed multi-asset portfolios that encompass dozens of assets, rebalance automatically and perform automated TLH. |
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