Nervous crypto investors gain comfort via total return approach instead of only chasing price gains

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(Kitco News) – In a business where investment success is often measured in basis points, or 1/100th of a percent, the ability of an asset manager to consistently deliver mid-single digit outperformance is no small accomplishment.

Whether it’s stocks, bonds, precious metals, crypto or any other asset class, this so-called quest for Alpha can not only bring untold wealth to managers but a line of new investors too.

“ 4 to 5 percent, that’s a lot to leave on the table,” Methodic Capital Management co-Founder and CEO Jason Hall told Kitco News correspondent Matt Nesto in the attached video, especially if you’re buying something that is only giving you price return rather than total return, he added.

Hall’s comments come ahead of the impending launch of his company’s first fund, the Methodic-CoinDesk ETH Staking Fund and are reflective of the not inconsequential income that many crypto investors aren’t even aware of.

“We believe that any investor that’s coming into the (crypto) space should be looking for that total return,” he said, before pointing to the estimated staking reward rate available to ETH owners that many speculators simply leave behind.

Confusion and Skepticism Remain

Not surprisingly, there is plenty of confusion surrounding the rewards and staking income that are available with proof of stake coins such as Ethereum or Solana to name a few, and Hall says those technical — but important — details account for only a small portion of the headwinds that are hindering the industry’s broader adoption.

“Anybody that’s not in the space that’s considering coming in is doing so with a high degree of trepidation, there’s some skepticism perhaps,” Hall said of the current climate for new crypto investors, noting the existing fear and skepticism that also surround “technical risk, compliance and regulatory risk, reputation risk” and more.

“Who am I invested in with? Who’s managing my money? What are they going to do with it? What’s the headline tomorrow?’” Hall rattled off concerning the types of objections he still often hears. “These are the kinds of things that people are thinking about.”

As he sees it, in order to attract sophisticated newcomers to the sector and make them feel comfortable and confident about what they’re getting into, the conversation must start off on something much more basic than explaining the staking rate to them.

“The first thing you need to talk about is, ‘Are we doing this compliantly?” Hall said, while also pointing to the transparency and ethics that are needed if high net worth individuals and institutions will have the confidence to dip a toe in.

“That’s really where crypto has done itself no favors,” he said, with traditional investors that are interested in the sector and technology, and may even already be believers. “We really need to consider their fiduciary responsibility or just the responsibility they have to themselves for their own family’s net worth,” he said.

Moving the Needle

To be sure, Hall said, the asset class remains small and, as such, will not require a lot to move the needle noting that there is a “gigantic pool of capital” that’s still on the sideline and mulling a small, initial allocation to crypto.

“It’s not just incumbent upon us at Methodic to build a trust layer for those folks to come in and write that first ticket but it’s also incumbent on the entire space as well to rebuild the trust factor, too,” Hall said, pointing to at least two distinct groups of would-be investors.

“There’s a relatively large pool of capital that maybe two or three years ago, maybe a year ago, have come in with a small allocation to the space and now maybe due to regulatory concerns, maybe due to some of the difficulty with centralized platforms and some of the challenges that they’ve run into running their businesses, and now they’re sort of unsure where to go inside the space,” he said.

And secondly, there’s also a large group of potential first-time buyers who have never allocated any money to digital assets.

“It’s a challenging landscape for sure.” Hall said, noting an expected surge in new funds, be they his own offering or those launched by competitors.

“There are a lot of investment options that are coming online as we speak, such as ETFs, ETPs, there’s other funds.”