Digital Assets Gain Favour Amongst Institutional Investors

In a survey released today by Fidelity Digital Assets, institutional investors are increasingly showing interest in digital assets, with almost 80% of the nearly 800 investors polled “finding something appealing” about the asset class.

In the survey of 774 institutional investors across the US (393) and Europe (381), 36% of respondents say they are currently invested in digital assets, and six out of 10 believe digital assets have a place in their investment portfolio.

The research, which was conducted in association with Greenwich Associates on behalf of Fidelity Digital Assets and the Fidelity Center for Applied Technology between November 18, 2019 and March 6, 2020, sought to understand institutional interest and adoption of digital assets, as well as the key barriers to participation in the asset class. Among those surveyed were financial advisors, family offices, pensions, crypto and traditional hedge funds, high net-worth investors, and endowments and foundations.

Digital Asset Ownership

Thirty-six per cent of respondents (27% in the US and 45% in Europe) say they are currently invested in digital assets. The survey revealed higher penetration with crypto hedge and venture funds, as expected, but also the financial advisor, high net-worth individual and family office segments.

US investors allocated to digital assets increased to 27% from 22% in 2019. Of all US and European investors who have exposure to digital assets, more than 60% buy digital assets directly. Fifty-nine per cent of US investors who currently invest, are invested directly, up from 55% in the 2019 survey. Amongst the backdrop of recent market growth in the number of crypto native and incumbent service providers offering cash and physically settled futures contracts, 22% of US respondents invested in digital assets have exposure via futures, which is a substantial increase relative to 9% of US investors surveyed in 2019.

Bitcoin continues to be the digital asset of choice with over a quarter of respondents holding bitcoin; 11% have exposure to ethereum (ether).

Looking out five years, 91% of respondents who are open to exposure to digital assets in a portfolio expect to have at least 0.5% of their portfolio allocated to digital assets. Amongst US respondents, this number is up by 9 percentage points vs 2019 from 79% to 88%.

Commenting on the survey findings, Tom Jessop, president of Fidelity Digital Assets, says: “These results confirm a trend we are seeing in the market towards greater interest in and acceptance of digital assets as a new investable asset class. This is evident in the evolving composition of our client pipeline, which spans from crypto native funds to pensions.”

Over the past year, the market has witnessed improved performance of digital assets, the entrance of incumbent service providers, and increasing coverage of the industry by mainstream financial firms through constructive research – all factors that may contribute to the upward trend in digital asset ownership among institutional investors.

Digital Assets Within a Portfolio

Almost 80% of institutional investors find something appealing about digital assets, according to the survey, with the three almost equally compelling characteristics across US and European investors being: uncorrelated to other asset classes (36%); an innovative technology play (34%); and high potential upside (33%). Amongst US respondents, the portion of investors who find appealing characteristics in digital assets grew by six percentage points to 74% this year. European investors are even more positive on digital assets with 82% finding something appealing.

A notable contrast is that 25% of European investors find the fact that certain digital assets are free from government intervention to be appealing, whereas only 10% of investors in the US feel this way.

The majority of institutional investors (6 in 10) feel digital assets have a place in their portfolio, though opinions vary on precisely where. Nearly 40% of institutional investors believe digital assets belong in the alternative asset class, while 20% of investors believe they belong in an independent asset class. Those investors may see certain advantages in digital assets over traditional alternatives such as hedge funds, private equity, real estate, etc, in that they are relatively more liquid, have low transportation, transaction and storage costs and have unique return drivers.

Factors Slowing Institutional Adoption

Despite the upward trending number of institutions adopting digital assets, some reticence remains, the survey finds. Among the obstacles to digital asset adoption cited were price volatility (53%), concerns around market manipulation (47%), and lack of fundamentals to gauge appropriate value (45%). Among US respondents, the strength of concerns decreased notably vs last year across most factors. Price volatility concern fell 13 points, concerns around market manipulation fell 6 points and lack of fundamentals fell 8 points.

“Investor concerns are largely focused on issues that will resolve themselves as the market infrastructure evolves,” says Jessop. “We’re proud to be one of many service providers actively driving that evolution for the benefit of the ecosystem and traditional investors alike.”

This marks the second consecutive year that Fidelity has conducted this survey amongst US institutional investors and the first for European investors.  

Julie Ros

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