Cryptocurrencies, despite their reputation as a disruptive force in the financial world, have yet to win over the majority of institutional investors. According to a recent survey conducted by PwC, only 12% of the 600 professional investors surveyed had either invested in cryptocurrencies or assets related to them.
This lack of interest may come as a surprise to some, given the attention received by cryptocurrencies over the last few years. Bitcoin, in particular, has been making headlines for its soaring price and volatile fluctuations. However, it is evident that the asset class remains divisive among investors.
The PwC report found that the most significant barriers to entry in the cryptocurrency market were regulatory concerns, lack of liquidity, and operational infrastructure. While some investors may see the potential benefits of investing in a digital asset, such as lower fees and instant global transfers, they are still wary of the risks involved.
Institutional investors, such as hedge funds and pension funds, have long been viewed as catalysts for mainstream adoption of cryptocurrencies and blockchain technology. However, it appears that this group remains unconvinced. The survey shows that only 16% of fund managers and 4% of pension funds had exposure to cryptocurrencies.
Despite these figures, there are signs that institutional investors are slowly warming to digital assets. A recent report by CoinShares found that institutional investment in cryptocurrency products had surged to a new high of $4.5 billion in the first quarter of 2021, up from just $2.6 billion in the prior quarter.
A significant driver of this trend has been the emergence of exchange-traded products (ETPs) that track cryptocurrencies. ETPs make it easier for institutional investors to gain exposure to digital assets without dealing with the complexities of owning and storing cryptocurrencies directly.
According to the PwC report, almost half of institutional investors surveyed said that they would consider investing in cryptocurrencies through ETPs. The ability to invest in a regulated product that is backed by a reputable financial institution may be the confidence boost needed to dip their toes in the water.
The benefits of ETPs go beyond regulatory compliance and ease of access. They also offer diversification benefits, which are crucial for managing risk in a notoriously volatile asset class. By investing in an ETP that tracks a basket of cryptocurrencies, investors can gain exposure to multiple assets, spreading the risk and reducing the concentration of any single investment.
Another factor driving institutional investors towards ETPs is the growing recognition of cryptocurrencies as an asset class to be considered alongside traditional investments, such as stocks and bonds. Many investors are now seeing the value of a diversified portfolio that includes exposure to alternative assets, such as gold, real estate, and, increasingly, cryptocurrencies.
The demand for ETPs tracking cryptocurrencies has led to a surge in new products entering the market. In Europe, where cryptocurrency ETPs are more established, investors can choose from a range of products that track Bitcoin, Ethereum, and other major digital assets. One of the most popular is the Bitcoin ETP by 21Shares, which has over $1 billion in assets under management.
In the US, the Securities and Exchange Commission (SEC) has yet to approve a Bitcoin ETP, despite several applications from asset managers. However, there are other functional equivalents, such as Grayscale’s Bitcoin Trust (GBTC), which is an investment vehicle that tracks the price of Bitcoin. GBTC has seen significant demand from institutional investors, with assets under management growing to over $30 billion.
As more institutional investors enter the cryptocurrency market through ETPs, it is likely that we will see increased demand for these products. However, there are still challenges to be addressed, particularly around regulatory compliance and transparency.
Until recently, there has been a lack of regulation around crypto ETPs, which has led to concerns around conflicts of interest and transparency. However, regulators are now coming to grips with the crypto asset class, with the European Union recently proposing new rules to regulate cryptocurrencies and ETPs.
Another challenge is the lack of standardisation of crypto indices, which makes it difficult to compare the performance of different products. To address this, a consortium of industry players recently launched the Crypto Council for Innovation, which aims to develop industry standards and best practices.
In conclusion, while institutional investor interest in cryptocurrencies remains low, there are signs that this is starting to change. The emergence of regulated ETPs, which offer diversification and ease of access, is helping to lower the barriers to entry for this group. As more institutional investors enter the market through ETPs, we can expect to see increased demand for these products, which will ultimately help to drive mainstream adoption of cryptocurrencies.
The world of cryptocurrency and blockchain technology is evolving at a rapid pace. Although crypto investments have become increasingly popular, a recent survey revealed that pro investors are not invested in crypto. Instead, they are exploring opportunities through Exchange Traded Products (ETPs).
According to the survey, most professional investors do not have any exposure to cryptocurrencies. The survey, conducted by PwC and Elwood Asset Management, reveals that only 10% of the institutional investors surveyed have allocated any funds towards cryptocurrencies. The survey was conducted among 40 institutional investors, including family offices, hedge funds, and pension funds.
The primary reason for not investing in cryptocurrencies, according to the survey, is a lack of understanding. The complex nature of cryptocurrencies and blockchain technology makes investing in them a difficult process. Institutional investors understand the value of cryptocurrencies, but they’re hesitant to invest due to lack of knowledge.
However, the survey also reveals that 45% of professional investors are considering entering the crypto market via ETPs. ETPs are investment products traded on exchanges that track the price of multiple cryptocurrencies. The concept behind ETPs is similar to ETFs (exchange-traded funds).
The survey suggests that if ETPs become a popular investment choice, it could lead to institutional investors making a significant allocation towards cryptocurrencies. ETPs could act as a middle ground for institutional investors who are still cautious about crypto but want to explore the market.
Another factor that may influence institutional investment in crypto is regulation. As the market matures, several regulatory bodies have started taking a closer look at cryptocurrencies. Institutional investors may start investing once regulatory clarity is achieved.
Institutional investors are unlikely to invest in cryptocurrencies directly due to the regulatory risks involved. However, they’re interested in crypto-related companies that comply with regulations. Blockchain technology has several use cases beyond cryptocurrencies. If institutional investors invest in blockchain-related companies, it could have a positive impact on the crypto market.
The survey results suggest that institutional investors’ interest in cryptocurrencies is increasing. As the crypto market matures and more regulatory clarity is achieved, institutional investment is likely to increase. ETPs can be a stepping stone for institutional investors who want to dip their toes in the crypto market but are still hesitant.
The crypto market is still in its nascent stages, and institutional investment has the potential to disrupt it. However, a lot depends on the regulatory environment and the development of blockchain technology. The crypto market is constantly evolving, and institutional investors must adapt to stay relevant. This is an exciting time for the crypto market, and institutional investment is an essential step towards mainstream adoption.