Morningstar - Q3 2022 - 36

Spotlight: Cryptocurrencies
EXHIBIT 3
which appeals to institutional investors
looking to boost their exposure to uncorrelated
returns. Over its history, the crypto market's
price returns have the most in common
with international developed-market stocks, but
with a correlation of just 0.30, there's a
lot of daylight between the pair compared with
other asset classes ( EXHIBIT 2 ).
How Are Investors Getting Access?
Few traditional financial intermediaries have
entered the crypto fray, citing a mix of
concerns around price volatility, the lack of
fundamental valuations, and regulatory
uncertainty. Of these three, we believe the
absence of smart, measured regulation in
cryptocurrencies is the key barrier to adoption.
According to a recent survey by Bitwise,
55% of U.S.-based financial advisors cite
lack of regulation as a key roadblock. Fidelity
found that 39% of institutional investors
globally think the same.
In the absence of clear regulatory guidance,
patchwork solutions have cropped up for
investors and advisors looking to get broad
exposure to cryptocurrencies without leaving their
service providers. The United States, for
example, hasn't yet rolled out regulatory approval
for exchange-traded funds that invest
directly in cryptocurrencies. But that hasn't
prevented asset managers from launching
workaround products that track cryptocurrencies.
There's an array of closed-end funds, ETFs
that invest in cryptocurrency futures, and Canadian
investment products (where commingled
crypto funds are permitted) that seek to replicate
the performance of cryptocurrency markets.
(Responding to growth, Morningstar launched
a digital assets Morningstar Category in April 2022.
As the space grows and asset managers
become more specialized, we expect that the
category will evolve.)
While not available to retail investors, venture
capital firms have also waded into the space, lured
by the promise of continued technological
development along several different key verticals.
In 2021 alone, venture capitalists poured
$32 billion into cryptocurrency projects, nearly
36
Morningstar Q3 2022
Costs to Transact Fees to trade crypto vary greatly, depending on the platform,
currency, and transaction type.
Costs of Transactions on Cryptocurrency Exchanges
Exchange Type
Retail
Brokerage
Trading Platform
Robinhood
Webull
TradeStation
Interactive Brokers
Swissquote
Payment
Applications
Centralized
Exchange
Venmo
PayPal
Cash App
Coinbase Exchange
Kraken
FTX
Binance
Gemini
Domicile
United States
United States
United States
United States
Switzerland
United States
United States
United States
United States
United States
Bahamas
Cayman Islands
United States
Crypto.com Exchange Singapore
eToroX
Decentralized
Exchange
Uniswap
SushiSwap
Kyber
PancakeSwap
Israel
N/A
N/A
N/A
N/A
Fees %
Currencies
Available
for Trade
11
41
5
4
28
4
4
1
183
164
272
307
88
213
56
790
200
160
2,000
+
+
+
+
Sources: Morningstar, CoinGecko, Crypto.com, and respective websites. Data as of 05/31/2022.
($500 ETH
Maker Order,
USD or USDT) Transaction Type
0.00 N/A
1.00 Spread
0.70 Transaction Plus Flat Fee
0.18 Transaction
1.00 Transaction
1.80 Spread
1.80 Spread
2.30 Spread
0.40 Transaction
1.50 Transaction
0.02 Transaction
0.10 Transaction
1.49 Transaction
0.40 Transaction
1.00 Spread
1.16 Gas Fee
3.91 Gas Fee
2.54 Gas Fee
0.65 Gas Fee + Liquidity Fees
doubling the total capital invested to $63 billion,
according to PitchBook.
Beyond pooled investments, regulatory
hesitancy has also shaped the market
for derivatives. CME CME remains the only
regulated exchange approved to offer
contracts with bitcoin as the underlying asset,
and it captures just a sliver of the trading
volume. Instead, offshore cryptocurrency-native
exchanges like Binance, FTX, and BitMEX-
which receive next to no oversight from
national regulatory entities-execute the bulk
of crypto futures contracts.
Notably, in 2020, the U.S. Department of Justice
indicted four of BitMEX's employees-
including its three co-founders-on charges of
failing to implement proper know-your-customer or
anti-money-laundering procedures. In February
2022, two of the exchange's co-founders, Arthur
Hayes and Benjamin Delo, pleaded guilty to
violating the Bank Secrecy Act. The third founder,
Samuel Reed, pleaded guilty a month later.
Where Are Investors Getting Access?
Although derivatives exchanges have largely
fled into the shadows of offshore tax
havens, retail investors still have several choices
for buying and selling cryptocurrencies
closer to home. Lured by strong retail interest
and fat commissions, several types of
companies have entered the cryptocurrency
exchange business, including:

http://www.Crypto.com http://www.Crypto.com https://www.morningstar.com/stocks/xnas/cme/quote

Morningstar - Q3 2022

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