Investors in digital assets have experienced a miserable period since the price of bitcoin peaked in November 2021. Prices have tumbled and scandals such as the collapse of the cryptocurrency exchange FTX have rocked confidence in the sector. Yet surveys suggest that, despite the turmoil in cryptos, investor interest in digital assets remains strong.
Despite the crypto gloom, interest in digital assets remains high
Long-term outlook remains bright
The expectations for digital assets may not be as bleak as the current challenging conditions suggest. Digital assets still seem to appeal to the broadest possible range of investors. A December 2022 survey of the attitudes and investment strategies of 1500 international investors, for example, found that:
- Four out of five high-net-worth individuals (HNWIs) and family offices are already invested in digital assets
- Mass affluent individuals have increased their investments despite dour market sentiment
- A majority of investors believe education and clearer regulation will drive greater adoption.
The survey – published by the blockchain company Matrixport and produced by FT Longitude, the specialist research and content-marketing division of the Financial Times Group – also reported that 70% of family offices were either very or highly interested in digital assets, and that four out of five HNWIs and family offices had invested in digital assets in the past year. Less than 7% of HNWIs and only 10% of family offices were uninterested in investing in digital assets. 1
Other surveys have generated similar results. For example, we carried out a survey among 100 hedge funds in the first quarter of 2022, the results of which were published in our report ‘Emerging Crypto Trends for Institutional Investors’. The survey found that 67% of respondents were likely to invest in cryptocurrency as part of their strategy, with just 11% unlikely to do so.
In addition, a survey by Coalition Greenwich found that US Financial Advisors (FAs) were fielding significantly increased demand from investors for digital assets. The analyst reported that 92% of mass affluent and high-net-worth (HNW) clients were asking for access to digital assets to include in their portfolios. Among the 537 FAs surveyed, 30% responded that they’d already recommended specific digital-asset investment products or planned to do so within the next three months. 2
Coalition Greenwich commented that the results were particularly interesting as the survey was conducted during the third quarter of 2022, following the collapse of TerraUSD, Luna and Three Arrows Capital that shook the digital-assets world.
Digital assets rapidly being adopted by institutions
Meanwhile, a 2022 BNY Mellon survey of over 70 institutional investors around the globe (including asset managers, asset owners and hedge funds) reported that:
- 41% of institutional investors held cryptocurrency in their portfolios
- Another 15% of institutional investors planned to hold digital assets in their portfolios within the next two to five years
- 91% of institutional investors were interested in investing in tokenised assets 3
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Meanwhile, our survey, ran in early 2022, found that most hedge fund managers were taking a cautious approach, testing the waters before deciding whether to commit further. It also found that no fund managers considered putting more than 20% of their portfolio into cryptocurrency. The most common allocation was between 2% and 5% of a portfolio – with 42% saying they were prepared to invest. The average amount these participants were willing to put into the market was 4.32%.
Investment strategies are evolving
The Matrixport survey also said that a majority of sophisticated and experimental investors, who hold up to 25% (and sometimes more) in digital assets, indicated that their investment strategies were maturing as they became more familiar with these products. In particular, these investors were seeking a broader range of investments to suit different risk profiles. Interestingly, they preferred native intermediaries such as crypto asset managers over traditional wealth managers or banks.
Our survey – referred to earlier – revealed that the most popular strategies that could be enhanced with cryptocurrency were equity long-short, which 25% felt could benefit from the blockchain, early lifecycle (23%), and market-neutral (22%). ‘Emerging markets’ was the lowest of those listed, with only 9% thinking that strategy could benefit.
In conclusion, the growth of institutional interest in digital assets appears unstoppable. For HNWIs and family offices, the potential for outsize returns is a significant allure. Meanwhile, institutions can see that the tokenisation of traditional assets – equities, bonds and other securities – holds the potential to revolutionise asset management. Such a development would allow significant gains in operational efficiency, a reduction in the costs and friction associated with trading and real-time settlement.
1 https://www.prnewswire.com/news-releases/private-wealth-digital-assets-study-finds-investor-interest-in-digital-assets-remains-high-301695770.html
2 https://www.prnewswire.com/news-releases/crypto-winter-has-not-frozen-demand-from-high-net-worth-investors---according-to-537-us-financial-advisors-301703605.html
3 https://www.bnymellon.com/us/en/insights/all-insights/digital-asset-survey.html#form
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