Chris Matta is the president of 3iQ Digital Assets (U.S.). Matta also serves as the president and founder of the Blockchain Association of New Jersey, which advocates for innovative regulatory leadership and enterprise collaboration for the cryptocurrency space.
Russ Prince: Can you describe 3iQ Digital Assets U.S.?
Chris Matta: 3iQ Digital Asset Management, our parent company, was founded in Toronto in 2012 and is one of the largest digital asset investment fund managers in the industry with over $2.5 billion in AUM as of 12/31/2021. Our firm has a history being at the forefront of digital asset management innovation, most notably when we launched North America’s first exchange listed bitcoin and ether funds in 2020.
Our entry into the U.S. market was a natural evolution being a global digital asset manager, but we believe our backgrounds set us apart. The team has decades of experience managing client relationships and investments at some of the largest financial services organizations. My career, for example, started at Goldman Sachs. I later launched my own digital asset management firm in 2017 before joining 3iQ in late 2020. Our team understands the end users and the gatekeepers —the pain points, and where the industry needs to go to increase adoption—and we’ve designed our investment platform in the U.S. with that in mind.
Prince: What type of bitcoin and digital asset investment solutions can our audience of readers consider given the regulatory environment and different restrictions?
Matta: A recurring question we hear is “how do I invest in the space?” Right now, there are limited options for U.S. investors seeking professionally managed investment solutions. Most crypto solutions in the U.S. offer exposure to single assets like bitcoin. The available investment structures and strategy options are not robust. In the meantime, the crypto ecosystem continues to rapidly evolve, and investor curiosity keeps increasing.
We bridge the gap between traditional finance and digital asset management and strive to make it easier for Private Wealth advisors to confidently recommend digital assets in a familiar investment structure. That solution is 3iQ Q-MAP, a digital asset separately managed account (SMA) platform that was launched in December 2021 in partnership with Gemini.
Our platform delivers a broad menu of model portfolios across the digital asset space. There’s an option to invest in single assets like bitcoin and ether, an option to own a diversified basket of multiple crypto assets, and an option for a custom strategy. We also offer portfolio enhancements like tax loss harvesting—that’s a benefit unavailable in commingled fund structures like an ETFs or private funds.
A typical starting place for investors is our flagship SMA, the Market Index. The index is market cap weighted across the largest, most liquid assets available on the Gemini platform and delivers exposure to bitcoin, ether and other emerging crypto sectors like Web 3.0, DeFi and the metaverse.
Most importantly, Q-MAP investors are owning crypto assets directly in an SMA that’s discretionarily managed by 3iQ and custodied at Gemini, one of the largest qualified custodians in the industry. It’s an institutional quality account structure that removes a lot of the friction associated with self-directing a crypto portfolio.
Prince: From your view, what are the primary challenges to investing in digital assets and should management experience play a determining factor in seeking crypto exposure?
Matta: The main challenge facing the private wealth industry is lack of education. This is a new asset class, and it’s evolving rapidly. Asset managers and gatekeepers are playing catch-up while investors indicate they’re interested in owning digital assets beyond just bitcoin. In the meantime, options remain limited as the asset management industry grapples with crypto regulatory growing pains. This has pushed clients towards managing their own crypto portfolios, and with that, advisors have even more questions to answer beyond “what’s bitcoin?” Where should I buy? What’s a wallet? What’s a private key? What and how much should I own? The list goes way beyond these few questions.
There are also operational nuances unique to the crypto market. Managing all the moving parts is difficult with significant potential operational risks. Custody, for example, determines how secure and accessible your crypto assets are. Managing private keys, seed phrases and account passwords are common in managing your crypto portfolio but do not apply in traditional finance. If you lose your private key and can’t recover it, your crypto assets are gone.
For many of these reasons, professional third-party investment management is the most practical route for HNW investors. Manager size, scale and staying power is important since that often determines relationships with operational partners. Sizable investment managers are institutional investors, and with that typically comes institutional grade infrastructure passed down to the end client. Track record is also important—managers with experience investing through multiple cycles are well positioned to adapt to the continuing developments in the space.
Prince: From an allocation standpoint, what advice can you offer to Private Wealth’s audience for considering bitcoin and digital asset exposure as part of an overall investment portfolio?
Matta: The rules of traditional finance still apply when advisors think about building an allocation for clients. We think of digital assets as venture capital style investments with 24/7 liquidity. Bitcoin, Ethereum, and many crypto projects are powered by blockchain, a transformative technology that’s still in the adoption stage. Like other venture capital investments, we’d bucket digital assets as alternative investments. Historically, we’ve seen a number of the University endowments embrace venture capital in their alternatives allocation with a typical range between 5% to 15%. We think digital assets should represent a portion of that venture bucket.
Digital assets also offer the potential to deliver alpha for clients in an environment where it’s difficult to maintain historical risk/return assumptions of diversified stock and bond portfolios. Even though it’s a volatile asset, if properly sized, we believe Bitcoin can add value to a diversified portfolio. It’s been the top performing asset class eight out of the last 10 years, and the returns tend to move independent of other risk assets. Historically, it’s had low correlation to stocks and negative correlation to fixed income. Conceptually, we think of it as a form of insurance or portfolio protection within an asset allocation. It can act as a hedge against the broader risks we are seeing in the financial system today like increased inflation or anemic yields.
If we had one message for the Private Wealth Advisor community, it’s don’t get caught standing in place. HNW investors are asking about bitcoin and digital assets every day, and if you aren’t having the conversation with your clients, then someone else is. If you aren’t educating yourself on this asset class, you’re at risk of being the taxi medallion owner in a ride sharing world.
Request a complimentary PDF copy of Elite Wealth Planning: Lessons from the Super Rich at princeasoc@protonmail.com.
