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Bitcoin tops the poll as the preferred asset
A recent report by Fidelity Digital Assets revealed fresh data showing growing institutional interest in digital assets on a year-on-year basis.
The report also noted that investors in Europe are more open to the emerging asset class and have a more progressive view of the space in comparison to US investors.
In a survey of about 800 institutional investors across the US and Europe, 80% of investors were interested in the asset class. From the respondents, 36% said they were already invested and 6 out of 10 believed digital assets have a place in their portfolio.
The research report surveyed family offices, pensions, crypto and traditional hedge funds, high net worth individuals as well as endowments and foundations.
Digital asset owners on the rise
“Projecting out within a 5-year time-frame, the vast majority (91%) of respondents expect to have at least 0.5% of their portfolio allocated to digital assets.”
Of the 36% of respondents (27% US & 45% Europe, respectively) said they were already invested in digital assets, with the survey showing higher interest with hedge funds and venture funds.
US investor allocation to digital assets increased by 5% from 22% to 27% in 2019. Notably, of all European investors who are in the market, 60% purchase assets directly. However, US investors have increased their exposure to digital assets via futures contracts, which has seen an uptick relative to the 9% of US investors surveyed in 2019.
Unsurprisingly, Bitcoin retains its position as the favourite asset of choice, with over a quarter of respondents holding Bitcoin, and 11% having some form of exposure to Ethereum.
Projecting out within a 5-year time-frame, the vast majority (91%) of respondents expect to have at least 0.5% of their portfolio allocated to digital assets. US investors seem to be lagging in this sentiment, with the number up by 9% at 88% against 2019’s 79%.
Fidelity Digital Assets president, Tom Jessop, commented on the findings, stating that the data confirms a trend of “acceptance of digital assets as a new investable asset class […] evident in the evolving composition of our client pipeline.”.
The appeal of digital assets
Among respondents, the most compelling characteristics US and European investors named for their interest were:
- Uncorrelated asset class (36%)
- Innovative technology play (34%)
- High potential upside (33%)
As with prior data, European to US investors found digital assets to be more positive on an 82%-74% ratio, respectively. Interestingly enough, 25% of European investors pointed to no government intervention being an appealing aspect, as opposed to only 10% of their US counterparts.
Digital Asset portfolios
Six out of ten investors felt that digital assets have a place in their portfolio. Some differences in the characterization of digital assets still linger though, with 40% of institutional investors believing that digital assets should be in the ‘alternative asset class’ as opposed to 20% who believe they should belong in an ‘independent class’. As a side note, certain advantages over traditional assets such as low transportation, storage, and running costs may be weighing in as return drivers here.
What’s hindering institutional adoption?
Of course, despite the fact that institutional adoption is taking place, there’s always room for improvement. Respondents on this question cited three concerns:
- Price volatility (53%)
- Market manipulation concerns (47%)
- Lack of fundamentals for valuations (45%)
However, these concerns reduced in strength among US investors on a year-on-year basis, with the above-mentioned concerns decreasing 13 points, 6 points, and 8 points respectively.
Commenting on this development, Fidelity CEO alluded to his belief that investors are “largely focused on issues that will resolve themselves as market infrastructure evolves.”
FCA consumer research report suggests room for retail growth
“researchers found a statistically significant year-on-year increase from 3% to 5.35% this year”
Meanwhile, the UK’s Financial Conduct Authority’s published a report showing retail potential for retail growth, estimating that about 3.86% of the general population own cryptocurrencies. The figure amounts to about 1.9 million adults.
Briefly, the report found that 75% of consumers owned less than £1,000 in crypto assets, with the most popular reason for purchasing said assets being “as a gamble that could make or lose money.”.
Around 45% of current and previous cryptocurrency owners said they have seen a related advert. Of these, 35% said it made the purchase more likely.
Markedly, the researchers found a statistically significant year-on-year increase from 3% to 5.35% this year in those who hold or held cryptocurrencies, representing a 2.35% increase from approximately 1.5 million to 2.6 million people.
When seen in aggregate, the data appears to point to a trend that speaks to the narrative of increasing adoption over the coming months to years from both an institutional and retail perspective in and around the US, Europe, and the UK.