This story first ran in Financial Advisor IQ's sister publication, Ignites.

WisdomTree executives are still hot on the growth that can come from providing digital asset products and services, even as rivals and even some investors have gone cold.

The firm is leaning on its steadily growing and highly profitable ETF business to provide a sturdy base as it both beta-launched its WisdomTree Prime digital wallet and minted its first digital dollar token in the past quarter, officials said on the firm’s second-quarter earnings call Friday.

And while WisdomTree is slowing hiring and discretionary spending to respond to the decline in equity and bond markets globally, the firm is on track with its guidance for 2022 spending on digital assets initiatives. The firm previously guided to a range of $9 million to $14 million for such initiatives, and actual spend now ranges from $11 million to $12 million.

“For us, this crypto winter is a good thing,” said Jarrett Lilien, president of WisdomTree, in an interview after the company’s earnings call.

Interest in crypto has softened in the short term amid a steep drop-off in prices – Bitcoin is down 48.7% year to date as of Friday, according to Coindesk. Blowups in some crypto trading and lending platforms have also scared off investors. But WisdomTree sees a silver lining in all of this: “[I]t also slows down the craziness, and our approach is a long-term one,” Lilien said.

But Lilien also emphasized that the firm is in no way chasing digital assets to the detriment of its ETF business – one of the criticisms at the heart of ETFS Capital’s Graham Tuckwell’s activist campaign against WisdomTree. Instead, Lilien argues, ETFs and digital assets fit together under the same umbrella of providing the best, most efficient transparent structures for investing.

“We feel that the digital wrapper is the next-best transparent structure,” he said, “and that’s our business to be in.”

Executives on WisdomTree’s call pointed out that the firm’s ETF business grew and remained profitable amid the rough first half for markets. Globally, its $3.9 billion of inflows in the second quarter represented a 13% organic growth rate and the seventh straight quarter of positive sales, Lilien said on the call. That growth has continued into July with $400 million of flows to date, he added.

In the United States, WisdomTree’s ETF flows totaled $4.3 billion, nearly double the $2.3 billion of net flows in the first quarter. The vast majority of those flows — just under $3.9 billion, according to FactSet data — came from its $7.4 billion Floating Rate Treasury Fund's serving as “a safe haven” amid rising rates and inflation, noted Chief Financial Officer Bryan Edmiston on the call. But the firm also saw positive flows in U.S. equity, emerging markets, international equity and fixed income.

The firm is also executing on its model distribution strategy, executives noted, with strong adoption of models within its partnerships with Merrill Lynch and Morgan Stanley Wealth Management. The firm has also seen interest in the portfolio and growth solutions custom-model platform for registered investment advisors and independent broker-dealers that it launched in April.

Adding new advisors to the models has been an important metric for measuring the success of the models business, and the firm has seen a steady uptick of subscriptions in both areas, said Tom Skrobe, head of product solutions, in an interview. “After we engage with them, if they invest one client [in a model], they’ll invest more clients,” he said.

The firm is also working to build relationships with RIAs to help them with the technical and operational aspects of implementing models, like rebalancing, to provide “an easy button” for those smaller distributors to use models, Lilien told Ignites.

And WisdomTree would like to add more large distributors to its models program as it deepens adoption within current platforms, Skrobe added.

The strength in ETF sales did not completely offset the market declines, however, and WisdomTree’s total assets fell $5.1 billion in the quarter, to $74.3 billion. Lower assets, combined with a 1-basis-point decline in average fees, to 39 bps, drove revenue down 1.4% in the quarter, to $77.3 million, although it was higher than the $75.8 million generated in the year-ago period.

Second-quarter operating margins fell to 20.5%, from 22.6% in the first quarter.

The company will be “disciplined” with its spending amid the uncertainty, Edmiston, the CFO, said on the call. But the firm should be able to maintain gross margins of 79% in 2022, down only slightly from previous guidance of 80% to 81%, despite the market movements, he added.