In a first for New York City–based Ritholtz Wealth Management, the $1.8 billion AUM RIA is launching a crypto index in partnership with asset management firm WisdomTree, crypto and education platform Onramp Invest and crypto custodian Gemini. Michael Batnick, director of research at Ritholtz, talked with WealthManagement.com and shared his expectations for the index and why it’s time for advisors to start providing advice about cryptoassets.
WealthManagement.com: What makes this index unique?
Michael Batnick: If an investor wants to own Bitcoin, they have a few options. If they want to own Bitcoin, they can go to Coinbase or Gemini or whoever and buy Bitcoin directly. Or any other coin. That was for the enterprising investor who was early and did this on their own.
Or they could buy one of the trusts that either traded at a significant premium or discount to the underlying asset. That was not exactly ideal. If you wanted exposure inside of one of your brokerage accounts, that's how you did it. But there were trade-offs with that, such as tracking error.
And then we had the futures ETF launch for Bitcoin.
But if an investor wanted to get diversified exposure, not just to Bitcoin, not just to Ethereum, but to all the other protocols that are going on inside of the ecosystem and just wanted exposure to the cryptocurrency space in a diversified way—something like that did not exist.
We were trying to give our clients exposure to the space above and beyond just Bitcoin and Ethereum. That was the impetus for building something like this.
Frankly I don't really care about being unique. I care about my clients. This is built for our clients and for other advisors and individual investors; people who listen to us; people who are fans of ours.
The idea was not, “Let's look at everything and carve out something unique.” It was, “Let's build something that is a kick-ass product for clients.”
What we are doing, that I think is unique, is we are giving exposure to other areas like defi and the metaverse. Having exposure to that is pretty unique.
We're not in the business of uniqueness in terms of raising trillions of dollars here. I mean, there are a dozen S&P 500 ETFs, all with over a billion dollars. The idea that only the most unique crypto solution is going to thrive is absurd. There's going to be room for a lot of winners.
WM: Walk me through the structure of the index. You have crypto assets that you're invested in, the metaverse and then entities that facilitate the creation and holding and transactions of crypto assets. How do you select those?
MB: We are limited to what's on Gemini's platform. Solana is not in the index, for example, and Avalanche is not in the index. That's not because we don't think that these are useful. It's because these aren't available in Gemini.
As soon as they become available, there will be an index committee meeting and we will discuss their implementation. We are ready with a plan for when these things are available.
WM: Was the decision to work with Gemini based on Onramp’s partnerships? Or was there a different consideration?
MB: Onramp is working with Gemini. Gemini is one of the most heavily regulated custodians in the industry. They are best in class in delivering a secure portal for our clients.
WM: There are multiple entities working together with this index. What are the spheres of influence? How do all of these relationships work between Ritholtz, WisdomTree, Onramp and Gemini?
MB: We work with Onramp very closely as users of their product. Onramp is a startup and crypto is basically a startup. There's just a lot of moving parts. My operational and client service team was working with Onramp on a daily basis for the last month, plus, making sure that this was 100% ready for prime time.
WisdomTree has a digital asset team. They’ve launched exchange traded products in Europe and they are “all in on defi,” to quote [WisdomTree CEO] Jono Steinberg.
I have worked with Jeremy [Schwartz, global chief investment officer at WisdomTree] and his team at a high level outlining what we want the index to look like. From there, I left it to them to make the decisions on a quantitative basis.
WM: Talk to me a little bit about the decision to license the index to Onramp.
MB: I'm going to punt on this because I'm not in the business of licensing indexes. This is the first time that we've ever done something like this. What I will say is, we are friends with [Onramp CEO] Tyrone [Ross Jr.]. We want to support him. We financially support him. We are investors in Onramp, as is WisdomTree. So in terms of like making the decision on day one, that was a no-brainer.
WM: Why did you decide to build this index?
MB: I first bought Bitcoin in May of last year. I've obviously been following it for a while, definitely with a skeptical eye.
It's really difficult for the average person and for our clients. Many investors don't really know where to begin. It's hard.
I'm thrilled to not be messing around and buying Decentraland [a decentralized 3D virtual reality platform] or Sandbox [a virtual metaverse] or any of these things. I am just thrilled that all of my dollars going forward are going to go into this index.
I want exposure to the space. I think it's going to be way bigger in the future than it is today. Obviously returns aren't guaranteed and risk is. And I've been saying to advisors to let their clients know that this is the type of asset that is going to fall 20% while you're sleeping.
I didn't think that it was going to happen on Saturday night. But I'm glad that it did because this had to happen. I'd much rather invest our clients' money into a buying opportunity.
WM: What is going to be provided by this index?
MB: It's hard, it's complicated. I've had a million people say to me, “Where do I begin?” Giving this to people is so much easier.
This is a way to prevent people from potentially making poor decisions, myself included. Having an index for our clients, again, myself included, is hopefully going to prevent us from doing something foolish.
WM: As far as what the index is invested in now and how that's going to change over the future: It's purely crypto assets right now. In the future will there be investments in companies like Coinbase that are providing access to crypto assets, or are you sticking purely with crypto assets?
MB: I can't imagine we would add publicly traded companies that are in the crypto space. What I could see, but there is obviously a giant regulatory hurdle—I would love to be able to include stable coins that have an interest feature. We've kicked the tires on it, but in terms of regulation, we’re just not there yet.
WM: When do you expect this index to be fully available for advisors using Onramp?
MB: I hope sometime in the first quarter. On top of the 150 emails that we got from financial advisors interested in the index, we got another 750 from individual investors.
This was a product that we had built for our clients, exclusively. Then we decided, “Why don't we open this up to other advisors and individual investors?”
The intention going into this was to have a solution for clients who have been asking about cryptocurrencies. We are not pushing this on anyone. This is for clients who had expressed an interest in getting access to the space.
WM: Is there a lead-gen opportunity for Ritholtz Wealth Management in launching this index, considering the ratio of interested investors to interested advisors?
MB: Yes, for sure. We definitely had a heavier-than-usual volume of inquiries last week. Again, just to be clear, the idea for this was first and foremost that we wanted a solution for our clients. There were ancillary benefits, like marketing.
WM: Is there anything else that would be helpful for advisors to know about this announcement or anything that you want to emphasize?
MB: Yes. I would resist the temptation to feel like you [as an advisor] need to become an overnight expert, or have imposter syndrome that you might not be able to answer a client's question about the specifics within the index. You can hop on a call with a client who might know more about crypto than you. That's OK.
When you, as an advisor, are providing client exposure to large-cap U.S. stocks, you don't need to know why Caterpillar is weighted this way and Boeing is weighted this way, right? You want to give them exposure to the asset class. The specifics of the index are for the committee to worry about.
For advisors and clients who have been asking about crypto, this is a sensible way for investors to get exposure to the space over the long term. Be ready for a bumpy ride, because no pain, no gain. If something has the potential to appreciate multiples from where it is today, you better believe that there's going to be some serious pain along the way. Position and size yourself accordingly.
This interview has been edited for length and clarity.