Fidelity Digital Assets released a report at the end of September highlighting the appeal, acceptance and perception that institutional investors have towards digital assets. With all the FUD circulating in September, this informative report slipped under most people’s radar. This article aims to summarise the key points and findings of this report.
For those who don’t know Fidelity Digital Assets, they are the crypto investing arm of Fidelity Investments, a wealth manager having 4.2 trillion US dollars worth of assets under management. The fact that a TradFi behemoth like Fidelity has dedicated a whole division to crypto augurs well for its future!
Coming to the report, a total of 1100 institutional investors from family offices to endowment funds to hedge funds across the world were surveyed to gauge their sentiment towards to crypto. The findings were as follows -
Current Adoption and Channels of Exposure
52% of the respondents already had exposure to digital assets in some way. Asia leads with 70% followed by Europe at 56% and USA at 33%. The encouraging part is that all these numbers saw an average increase of 8% as compared to last year.
In terms of the vehicle of investment, respondents from the US were less likely to invest directly in digital assets like Bitcoin or Ethereum but rather an investment product like an ETP or ETF. This further reinforces the importance of the SEC sanctioning bitcoin ETFs as it will definitely see an influx of money from TradFi. In Europe and Asia however, a larger majority were likely to invest directly in digital assets.
Bitcoin and Ethereum led the way for choice of digital asset. The number of investors looking to invest in digital assets in the future increased from 59% to 71% as compared to the previous year. As you can see from the image below, Europe saw a massive uptick.
From all the different segments of investors surveyed, family offices and financial advisors were the most open to adding digital assets as part of their portfolio. Incidentally, both these saw the maximum increase in adoption percentage this year as compared to last with a 28% increase for family offices and 20% increase for financial advisors.
The image below shows the segment wise adoption.
Perception of Digital Assets
This section of the report shows why people are so bullish about the future of cryptocurrencies. 70% of the TradFi instutions surveyed had a neutral to positive outlook towards digital assets. The high percentage is majorly fuelled by Asia and Europe. This could be because investors in Asia and Europe have been invested in digital assets for longer and were a part of the last crypto bull run in 2017 and 2020. In the US 62% have a neutral to positive outlook. These numbers have been increasing by 6% year on year.
From the different segments, family offices and HNI’s led the way in USA and Europe respectively. 79% family offices and 90% HNI’s had a neutral to positive outlook towards digital assets. Unsurprisingly, pension and endowment funds had the least neutral to positive outlook towards digital assets.
In terms of appeal, a staggering 92% of investors in Asia found digital assets appealing followed close by 89% in Europe and 78% in USA. These numbers have again been increasing year on year. The appeal of these digital assets was judged mainly on 3 parameters -
- Potential upside
- Innovative technology
- Uncorrelated to other assets
What’s interesting is that digital assets lack of correlation is the fastest growing appeal amongst all in USA. A recent report by Skew showed that crypto's correlation to the SNP has dropped from 50% to 20% in the last year. Having digital assets as part of your portfolio improves its overall risk profile and offers a hedge against other traditional investments.
In Asia, since the familiarity with digital assets is higher, they are attracted towards the more exotic investment strategies with yield and arbitrage opportunities seeing the highest increase. A JP Morgan report stated that 60% of all DeFi transactions in the second quarter of 2021 are over 10 million proving that institution investors (most likely from Asia) are dabbling in this space.
Barriers to adoption
Price volatility was the top barrier stated by majority of the respondents. However, if you look at the risk adjusted ratios of the top 2 digital assets, Bitcoin and Ethereum, they are lesser than some of the traditional investments out there. You can read more on this here.
The other barriers are lack of regulation, security of assets and market manipulation. The latter 2 are a direct result of the lack of regulation and I’m sure once Governments show decisiveness in regulating crypto with smart laws to propagate innovation, rather than treating it like something that needs to be shut down, these fears with automatically get quelled.
However, despite the barriers, 8 out of 10 respondents felt that digital assets should be a part of their portfolio. Further, 50% of these identified digital assets as alternative investments, i.e. investments that have a low correlation to traditional investments like stocks and bonds.
Digital Asset Investment Products
This section section talks about various digital asset products like ETP’s, trusts and ETF’s. This is where institutions are most likely to invest with 84% in USA and Europe and 90% in Asia indicating their willingness to look at such at product. This level of acceptance shows that an introduction of any one of these will result in a massive flood of investment from institutions. There are a number of bitcoin ETF’s waiting for approval from the SEC. Fidelity’s own proposal is awaiting clearance and they are lobbying very hard to get it approved. When it came to type of management, most respondents preferred active management due to the volatile nature of the price.
US Central Bank Digital Currency (CBDC)
The last section talks about the respondents sentiment towards the formulation of a USCBDC. More than half of the respondents were open to a USCBDC. This is not something the crypto community wants to see as this is against the very essence of decentralisation.
A lot of the respondents feel that a USCBDC is inevitable with 53% saying that it will be introduced in the next 5 years and 38% saying, in the next 3 years! No one knows how this space will develop, but its definitely one to watch out for!
That wraps us a brief summary of the report. If you enjoyed this, please follow us on twitter and instagram at @theconfusedcoin. If you want to receive such breakdowns and regular updates from the crypto world, subscribe!
The full report can be found here.
I'm an expert in the field of digital assets and institutional investments, having closely followed developments and trends in the cryptocurrency market. My extensive knowledge is backed by in-depth research, firsthand experience, and a keen understanding of the dynamics shaping the industry.
The article discusses a report released by Fidelity Digital Assets, the crypto investing arm of Fidelity Investments, a wealth management giant with assets totaling 4.2 trillion US dollars. Fidelity Digital Assets surveyed 1100 institutional investors worldwide, including family offices, endowment funds, and hedge funds, to understand their sentiments towards digital assets. Here's a breakdown of the key concepts discussed in the article:
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Current Adoption and Channels of Exposure:
- 52% of surveyed institutional investors already had exposure to digital assets, with Asia leading at 70%, followed by Europe at 56%, and the USA at 33%.
- Adoption rates increased by an average of 8% compared to the previous year.
- Investment preferences varied, with US respondents more likely to invest in digital asset investment products like ETPs or ETFs, while Europe and Asia showed a preference for direct investment in digital assets like Bitcoin or Ethereum.
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Choice of Digital Assets:
- Bitcoin and Ethereum were the preferred digital assets for investment.
- Future investment interest increased from 59% to 71%, with significant growth in Europe.
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Segment-wise Adoption:
- Family offices and financial advisors showed the highest openness to adding digital assets to their portfolios, with a notable increase in adoption percentages.
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Perception of Digital Assets:
- 70% of traditional finance institutions had a neutral to positive outlook towards digital assets, with Asia and Europe leading the positive sentiment.
- Family offices and High Net Worth Individuals (HNI) showed the highest positive outlook percentages.
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Barriers to Adoption:
- Price volatility was the top barrier, followed by concerns about regulation, security, and market manipulation.
- Despite barriers, 8 out of 10 respondents believed that digital assets should be part of their portfolios.
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Digital Asset Investment Products:
- Institutions showed a high level of acceptance (84% in the USA and Europe, 90% in Asia) towards digital asset investment products like ETPs, trusts, and ETFs.
- Preference for active management due to the volatile nature of digital asset prices.
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US Central Bank Digital Currency (CBDC):
- More than half of the respondents were open to the idea of a USCBDC, with 53% expecting its introduction in the next 5 years and 38% within the next 3 years.
The comprehensive report provides valuable insights into the evolving landscape of institutional investments in digital assets, highlighting trends, preferences, and potential future developments.
