Betterment has partnered with crypto exchange Gemini to launch crypto portfolios for its 730,000 users. In the 2022 Q2 Robo Ranking Report, Betterment won the "Best Robo for First-Time Investors'' category for its intuitive interface. The company has had good judgment in the past to not rush into new categories before they are proven out (unlike Wealthront’s risk parity for example), so we take this as a positive sign overall of de-risking digital assets within asset allocations.
Gemini has grown this year by acquiring crypto custodian BITRIA and trading tech platform Omniex in January. Besides the $200MM in Custody Insurance Coverage and its multi-layered security features, Gemini's custody offering lets users trade directly on Gemini Exchange with assets held in offline storage, such that the hardware security modules, storing private keys, are disconnected from the internet.
In February, Betterment also acquired crypto roboadvisor Makara, which uses an algorithmic trading software developed by Strix Leviathan. Strix, launched in 2018, spun out of Makara, registered with the SEC as an automated roboadvisor, and opened the platform to retail investors. Makara offers automated crypto baskets, ranging from single-coin investments, such as the “Ethereum” basket, to thematic baskets, such as the “Universe,” which contains 43 cryptocurrencies. The best performing basket, according to returns, has an all-time return of -40%. Yep, you read that right — it’s all about the time period.
Makara uses Gemini to custody assets for a 0.35% fee per transaction, so the Betterment partnership has a precedent. That said, we are a bit confused as to the product packaging here — whether thematic baskets are different from the Gemini assets integrated into Betterment portfolios. Our guess would be that Makara gets deprecated once the simpler Betterment offering is done.
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This is an interesting story as it relates to market structure and investment fund product across the African continent, and the challenges of moving securities between different countries. Ghanaian B2B capital markets infrastructure platform SecondSTAX (Secondary Securities Trading and Aggregation eXchange) has raised $1.6MM in pre-seed funding from private investors and LoftyInc Capital, Orbit54, and STEMeIn.
The platform, launched this week, allows asset managers and institutional investors to access securities markets across various African geographies. Western capital markets participants tend to assume quite a bit about common custody, settlement, fund management, and trading infrastructure — but those rails have to be built to create an advanced investment management industry.
SecondSTAX provides access to debt and equity securities across African bonds and stock exchanges, and assists investment firms that want to invest in the continent, supporting various currencies. Tawiah, CEO of SecondSTAX, mentioned, “you have exchanges where the securities are traded in each country. Nigeria is a silo, same with Ghana, Kenya and South Africa, etc. SecondSTAX is effectively the aggregation of these exchanges across the continent."
African countries are evolving at different paces, and the uneven infrastructure and fragmented financial regulatory framework can make operating difficult for African fintechs. For example, Nigeria-based fractionalized investing app Bamboo, which raised $15MM, does not offer stocks and bonds across different geographies.
DBS bank has rolled out self-directed crypto trading via DBS Digibank, enabling accredited investors to trade Bitcoin, Bitcoin Cash, Ethereum, and XRP on DDEx, a bank-backed digital exchange. Previously, crypto trading on DDEx was limited to institutional investors, family offices, and clients of DBS Private Bank. The target market is about 100,000 accredited investors in Singapore.
We have seen asset managers pursuing growth in digital assets (e.g., Abrdn buying a stake in Archax), but offering crypto investing is still rare across traditional banks. DBS allows clients to see their equities, bonds, forex, and crypto investments in one place rather than switching between various investment apps; DBS bank accounts and DDEx custody accounts link via DBS digibank. There are no transfer fees, conversions, or third-party processing.
Unfortunately, crypto-friendly banks all seem to charge 1%+ trading fees for the convenience of dealing within a licensed regulatory perimeter (e.g., Vast bank, LevelField Financial yet to be priced). DBS joins the pack with a 1% trading fee, a 0.1% exchange fee, and a 0.5% custodian fee per annum. We look at these economics as an attempt to charge high for early adopter features, with pricing pressure eventually driving the numbers down as everyone else pulls DeFi into the Fintech B2C bundle.
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M1 Finance also just launched their crypto product last week.