How many Institutional Investors own Cryptocurrencies?

According to the survey by Fidelity, slightly more than half (52%) of institutions surveyed across Asia, Europe and the U.S. have already invested in cryptocurrencies. The results of Cointelegraph Research’s survey corroborate the findings of Fidelity’s 2021 survey of its professional investor clientele. 

In addition to Fidelity’s survey, there have been four other surveys done of professional investment in cryptocurrencies. The 2022 Nickel Digital Institutional Investor Survey interviewed more than 100 investors representing more than $110 billion in assets under management (AUM).

Nickel Digital Asset Management pointed out in their report, How Professional Investors Perceive Crypto in 2022 and Beyond that a single digit allocation to Bitcoin of 1% to 5% has a strong positive impact on portfolio performance. This can be seen in Figure 3 with a doubling of return by adding 5% of Bitcoin to a 55% stock and 40% bond portfolio. Similarly, Cointelegraph’s survey presented in this report found that professional investors had 3.3% of their portfolio invested in cryptocurrencies on average.

 Similar to our findings, Nickel reports:

• 91% of professional investors believe digital assets are becoming more mainstream.
• 19 of the surveyed companies have invested in Bitcoin with over $60 billion worth of BTC held.
• 75% of the digital assets are held in North America (U.S. and Canada).
• 78% of the key personnel surveyed have a positive view about digital assets.
• 47% say improved custody is one of the key drivers of sentiment shift.
• 25% have more than doubled their holdings in the last year.
• 38% believe their funds will hold between 5%–10% of assets in crypto.
• Exploiting market inefficiencies was the No. 1 alpha for 69% of investors surveyed.
• 79% cited security concerns for holding them back.
• 67% cited volatility concerns. 
• 56% said low market capitalization meant reduced liquidity. 
• 46% had regulatory concerns.

That security and liquidity concerns trump regulatory, and the legal risk outlook was the most surprising takeaway from this report in our view. This would mean that good custodian services with proven track records and improved derivatives offerings could be crucial to bring more institutional investors to the digital asset market.

Both of these will take time, but we have seen multiple promising offerings under development and are cautiously optimistic this space will see drastic improvements in the next 12 months.

The second survey report is the Annual Global Crypto Hedge Fund Report 2021 by PricewaterhouseCoopers. Since PwC’s report focuses on 2020–2021 investments, returns are not representative of current market conditions and have been omitted from this report. There are still a number of very interesting facts we have discovered.

• In 2020, use of custodians by institutional investors decreased from 81% to 76%, indicating that institutions are more active in protocol governance, something that custodians usually do not actively support.
• Digital asset funds were incorporated in the Cayman Islands (34%) and the U.S. (33%) for the most part.
• Contrary to Nickel Digital’s more recent report, 82% of the participants cited regulatory concerns as one of the biggest challenges.
• 2020 saw a distinct reduction in quantitative digital asset investment strategies in favor of discretionary long and short holdings by hedge funds.
• Investments were driven by family offices and high net-worth individuals with just 23 investors per fund (median).
• Investments were dominated by BTC and Ether (ETH) holdings, displaying the kind of power laws we’ve been seeing in other reports as well.
• 53% of the funds permit active shorting of digital assets.
• 28% have active short positions.
• Only 56% of the hedge funds use derivatives as part of their investment execution.
• Decentralized exchanges were used but dwarfed by their centralized counterparts, with just 16% of the participants using Uniswap and 8% using 1inch.
• The average size of investment teams was 7.6 members with 2.8 years of crypto experience per team member. It seems that veterans of the initial coin offering bubble are calling the shots at hedge funds.
• Lock up in digital asset funds was one year across surveyed funds, with about 30% in hard lock.

The PwC report represents a less recent survey of the current landscape. Nickel Digital’s survey portrayed a landscape where investors’ regulatory concerns have been partly addressed and investment strategies have matured. Digital asset investments are making leaps and bounds in professionalizing their operations and offerings. But there are even more reports that we want to take a look at in next weeks article!

This article is an extract from the 70+ page Institutional Demand for Cryptocurrencies Survey co-published by the Crypto Research Report and Cointelegraph Consulting, written by multiple authors and supported by Flow Trader, sFox, Zeltner & Co., xGo, veve, LCX, Finoa, Lisk, Shyft, Bequant, Phemex, GMI.