2024 has been an active year for cryptocurrency investing. Connor Farley of Truvius analyzes the trends, interests, perceptions of institutional investing and how they have evolved in recent years.
I would like to welcome a new collaborator, Marissa Kim of Abra Capital Management, who provides insights in the Ask an Expert section on how to support a client’s investment interest in cryptocurrencies.
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Measuring trends in institutional interest in cryptocurrencies
Since 2019, Fidelity’s cryptocurrency-focused subset of institutional businesses has released a survey called the “Institutional Investor Digital Assets Study,” which measures trends in sentiment and adoption of cryptocurrency investing among institutional investors globally.
Overall, The 2023 survey depicts a generally strong but still mixed institutional outlook towards cryptocurrencies in the wake of a turbulent 2022.
Trends that reflect positive sentiment
Half of high-net-worth investors maintained a positive perception of digital assets, and nearly a third had invested in them for more than two years.
Positive perceptions and investments in digital assets are inversely related to age: 76% of institutional investors under 35 currently invest in digital assets compared to 18% of investors aged 65 and older.
Trends that reflect negative sentiment
Overall familiarity, perception and investment in digital assets declined for the first time since the survey began in 2019.
Price volatility and regulatory concerns were the two biggest barriers to investing in digital assets, as reported by US survey participants.
“Fraud/scandals” and “bad press/news” were the two main factors leading to worsening opinions towards digital assets. The survey didn’t delve into these categories, but institutions likely have the FTX saga on their minds.
It is important to note that the latest survey only extends from May 30, 2023 to October 6, 2023, missing a critical year-end period during which bitcoin rose from around $28,000 to $42,300, driven largely by anticipation of the SEC approval of spot bitcoin ETFs. this occurred later in January 2024. Perceptions have likely evolved significantly since early 2024 following the cryptocurrency market capitalization surpassing $2.5 trillion, Bitcoin rising to nearly $74,000 and SEC approval of Bitcoin and soon Ether spot ETFs.
What to look for in 2024
Arguably, the biggest market moments in the history of digital assets occurred after this survey took place, namely actions that reduce regulatory uncertainty, which could, in turn, reduce price volatility and improve options investment for investors.
Will the SEC’s surprise approval of Ether spot ETFs reduce regulatory concerns among institutions?
The digital asset market has begun the transition from early adoption to mass adoption. A seismic shift in industry leadership, product development and fiduciary commitment swept cryptocurrencies in 2023 and early 2024, enabling a new set of increasingly institutional-grade on-ramps to the asset class. This shift may take time to permeate institutional allocations more fundamentally, but the rapid adoption of spot Bitcoin ETFs following SEC approval (aggregate ETF AUM doubled from around $30 billion in January to nearly $60 billion in mid-June) could provide an early solution. indications of greater institutional interest in cryptocurrencies.
Will concerns about price volatility persist?
Volatility for the digital asset class remains elevated relative to other asset classes, but has trended downward over time and may continue to do so as improving regulatory conditions and institution-friendly product offerings potentially stabilize markets . Investors should also consider not only the volatility of cryptocurrencies, but also the risk-adjusted return profile of various blockchain assets.
Will institutional investments flow primarily into BTC and ETH spot ETFs, or will they be distributed across investment structures (SMAs, private funds, VCs) that offer diversified exposure to blockchain assets beyond the two mega caps?
Supported by major advances in industry infrastructure across 2023, spanning custody, trading and asset management, investors now have an improved, but still nascent, range of product options and investment platforms to help not only avoid the pitfalls of early adoption risk, but also take advantage of the rewards of early adoption. These options, in addition to ETFs, include the increasingly popular direct indexing vehicle SMA.
With the combined rise of blockchain data providers and the growing presence of systematic digital asset managers, will institutions become more familiar with cryptocurrency fundamentals and digital asset valuation methods?
About 37% of 2023 respondents cited “lack of fundamentals to assess appropriate value” as a barrier to investing. This high number reflects the emerging nature of the asset class and the learning curve associated with measuring blockchain value. However, this number is down from 44% in 2021. It may continue to decline as investors become increasingly familiar with blockchain technology and unique ways of analyzing a protocol’s value to users.
– Connor Farley, CEO of Truvius
Ask an expert
Q: What else should I think about besides buying and holding Bitcoin?A: If clients want exposure to digital assets, it is advisable to diversify that exposure, as you would with traditional assets. Bitcoin should be the heart of every wallet. However, ETH and SOL are increasingly being taken into account, as Ethereum is becoming the preferred chain for institutional applications and Solana is for consumer payment applications. Financial advisors should not leave their clients’ assets on the exchange, but use safe custody solutions to maintain ownership and access to their clients’ assets.Q: Should I get exposure through ETFs?A: While ETFs are convenient for retail investors, they lack the flexibility and opportunities available in holding real digital assets. Digital assets trade 24/7, unlike ETFs, which only trade during market hours. Additionally, ETFs do not generate yield, which can be an attractive income stream, and they cannot be used as collateral for loans. For clients with large BTC portfolios, borrowing against their digital assets may be preferable to selling and incurring capital gains taxes.Q. What customer demographic are digital assets best suited for?A: Understanding the suitability of digital assets requires evaluating clients’ risk tolerance and wealth management objectives. For low-risk clients, digital assets can serve as a store of value, with the opportunity to generate attractive returns through staking. High-risk clients may instead want access to venture capital investments in early-stage blockchain projects or high-return DeFi investment strategies. Tailoring these approaches to individual needs helps integrate digital assets into a comprehensive wealth management plan.– Marissa Kim, Head of Asset Management, Abra Capital Management
Keep reading
This was stated by the president of the US SEC Gary Gensler Spot ETH ETFs are expected to be available by September this year.
BNY Melon A global survey of family offices showed that 39% of family offices hold cryptocurrencies or are currently exploring them.
Head of the SEC’s Crypto Asset and Cyber Unit in the Division of Enforcement announced his departure from the agency on Friday.
Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
