Until recently retail investors were at the forefront of digital asset investments. Since the pandemic, all types of investors, notably institutional investors who were somewhat initially reluctant, are steadily realising the potential of investing in cryptocurrency.
Until recently retail investors were at the forefront of digital asset investments. Since the pandemic, all types of investors, notably institutional investors who were somewhat initially reluctant, are steadily realising the potential of investing in cryptocurrency.
Despite various concerns around the asset class, a study commissioned by Nickel Digital Asset Management has revealed that, since the start of the pandemic, institutional investors and wealth managers have changed their opinion on cryptocurrency, with 43 per cent saying that they now have a much more positive outlook on the asset class, citing reasons such as strong capital growth, clearer diversification benefits, and improving custodial services.
More specifically, the study revealed that 78 per cent have a positive opinion of bitcoin, with only 9 per cent saying that their perception of it is negative, and for Ethereum, 77 per cent have a positive view with only 7 per cent considering it a negative investment.
“We’ve seen investor interest increase dramatically, particularly over the past year, with total value locked in the DeFi market already reaching USD250 billion at the start of this year, from just USD18.7 billion in January 2021,” says Diana Biggs, chief strategy officer, DeFi Technologies.
Close to innovation
Investment consultant Syz Capital has also noticed an increasing interest in digital assets from investors. Sherban Tautu, head of liquid alternatives, says: “Our clients are very interested in crypto, NFTs and blockchain infrastructure. They wish to invest in digital assets as a way of being exposed to innovation assets. They’ve seen the interest from the younger generation and wish to learn more about it.”
Chris Shelby, director, private markets at Verus, also notes a high interest in bitcoin, other cryptocurrency, and related strategies.
A recent study carried out by investment platform VALK showed how professional investors are also increasingly focusing on digital assets, with roughly a third – from a pool of professional investors working in eight major economies for institutions holding more than USD1 trillion AuM – recently investing in crypto assets for the first time, and 55 per cent increasing their allocations.
This burgeoning interest within the investor community is also reflected in findings from a recent industry poll of more than 50 hedge fund managers conducted by Hedgeweek, which suggested around 39 per cent of managers have been asked by allocators to offer a digital assets vehicle.
Fringe experiments
Whereas ESG was a concern at the forefront of the industry this time last year, the VALK study shows that 54 per cent of professional investors are now more concerned about custodial services in DeFi and 52 per cent are also concerned about security issues.
Jawad Nayyar, co-founder and CVO, DAO PropTech says: “Apart from the volatility, issues of legality and security still plague the space making it difficult to do anything other than experiment on the fringes with crypto.”
Investors are calling for the regulatory environment to improve, with VALK’s research showing that 84 per cent expect regulatory improvements over the next three years, and 12 per cent predict a dramatic improvement.
To combat this and still allow for some allocation, John Bowman, executive vice-president, CAIA Association, thinks investors “should be taking a diversified “venture” approach to expose and play in this very disruptive and volatile innovation petri dish.”
The burgeoning support and interest among institutional investors throughout 2021 and into 2022 suggests digital assets are now being taken more seriously by managers and are starting to be viewed as a viable asset class, due to the high returns and investment opportunities.
Biggs adds: “As a relatively new alternative asset class, it naturally requires the right approach, timeframe, allocation and overall risk management, but the possibilities are definitely there for it to be a successful part of a diversified investment strategy.”
Read the full Institutionalising Digital Assets: Powering the hedge fund crypto surge Insight Report here.