North American investors and money managers expect the launch of spot bitcoin ETFs to drive strong institutional demand for bitcoin and ether, according to new research from II’s Custom Research Lab. Increasingly, these investors see digital assets as a viable, institutional-grade asset class, suggesting that digital assets may be well positioned for strong performance in 2024.
A recent study from II and Coinbase examines institutional investors’ views on cryptocurrencies and other digital assets. The survey among 250 investment decision makers at foundations, endowments, pensions, family offices, and asset management firms reveals growth in interest in digital assets among institutional decision makers. All study participants currently have company allocations to crypto, had such allocations in the past, or plan to invest in crypto in the next 12 months.
Investors are positive on the near-term outlook for digital assets, as 59% of survey respondents anticipate increasing their allocations to digital assets in the next three years, up from 32% of respondents who had this expectation one year ago. Similarly, a healthy majority of investors (57%) in the study foresee price appreciation for digital assets in the next 12 months, while only 8% expected crypto prices to trend higher one year ago. Indeed, respondents in this year’s study rank digital assets third among 15 asset categories as a source of attractive risk-adjusted returns, behind only private equity and U.S. public stocks.
Institutional enthusiasm has shifted sharply from a year ago as the asset class grew in maturity and large asset managers doubled down on broadening ownership through spot ETFs.
Now, investors eagerly await the U.S. Securities and Exchange Commission’s (SEC) decision on whether to approve more than a dozen spot crypto exchange traded funds in early 2024. If the SEC approves the spot ETFs, three-fourths of institutional investors expect it to increase their institution’s interest in investing in bitcoin or ether.
“With over 5% of the global population, approximately 425 million people, embracing cryptocurrencies, and 52 million Americans participating, the SEC’s potential approval of spot crypto ETFs signals a pivotal moment in the global transition toward digital assets,” said Brett Tejpaul, Head of Institutional at Coinbase. “This wave of institutional interest from professional money managers, hedge funds, and pensions that manage the world’s investment capital is not just a trend; it’s a transformative force, reshaping the financial system and solidifying crypto’s lasting presence in the financial landscape.”
Study participants seem to concur, as 65% of investors agree that cryptocurrencies are likely to become an investment vehicle used widely by institutional investors within 3-5 years.
This growing maturity may well prefigure a period of growth and widespread adoption for the crypto industry. Investors participating in the study identify three factors – more tangible economic value, regulatory clarity, and SEC approval of ETFs – as the most probable “next catalysts for growth of the crypto industry.”
Participants need to look no further than the financial system for potential use cases to catalyze growth: 73% say that blockchain technology can offer a quicker and more secure form of payment than the conventional banking system, and 66% think that it will eventually replace legacy systems for trade settlement.
As investors look beyond the immediate to year ahead, they foresee a future in which spot ETFs are a mechanism by which regulators are able to provide some clear crypto guidance. Queried on the likely outcomes of SEC approval of ETFs, 64% of study participants say it will clarify regulation of crypto investments. Notably, respondents also say that crypto-ETF approval is likely to produce better investment outcomes (51%) and stimulate institutional interest in crypto investments (64%).
Tejpaul of Coinbase adds, “ETF approval and greater regulatory clarity would be positive, stabilizing, and good for the ecosystem of digital assets in the long term. The lack of certainty about who can do what in these markets has held certain investors back from taking action on crypto. Clear guidance and oversight will bring investors the guardrails and understanding needed for robust use of this asset class.”
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In October 2023, Institutional Investor conducted a survey of 250 decision makers across hedge funds, venture capital firms, pensions, foundations and endowments, family offices, sovereign wealth funds, and asset management firms in the US to understand their views on crypto investing. All study participants currently have company allocations to crypto, had such allocations in the past, or plan to invest in crypto in the next 12 months. The survey was fielded by Institutional Investor’s Custom Research Lab from October 19 to November 6, 2023.