Fidelity: Institutional investment in cryptocurrency likely to grow
Institutional investment in cryptocurrency is likely to increase over the next five years, according to research from Fidelity Investments.
Institutional investment in cryptocurrency is likely to increase over the next five years, according to research from Fidelity Investments. The firm surveyed 441 institutional investors—including pensions, hedge funds, and endowments—to determine the investment outlook for bitcoin and other cryptocurrencies.
Fidelity Investments is the world’s fifth-largest asset manager with $2.5 trillion in assets under management. On May 2nd, the firm released research which surveyed 441 US institutional investors, including—pensions, hedge funds, financial advisors, and endowments to determine their outlook on investing in crypto.
Institutional Investors Looking to Invest
Based on results from the survey, 22 percent of respondents have already purchased cryptocurrency. If the survey accurately represents institutional interest, this is a remarkable increase from near-zero institutional investment in 2016.
More promising is that four out of ten respondents are open to future investments in cryptocurrency within the next five years. If opinion remains unchanged, this means that institutional investors could increase by up to 18 percent over the next five years. Additionally, nearly half of institutional investors (47 percent) view digital assets as having a place in their investment portfolios.
The data seems to indicate that institutional interest in bitcoin and crypto is increasing. As said by Tom Jessop, president of Fidelity Digital Assets, the firm’s crypto division:
“We’ve seen a maturation of interest in digital assets from early adopters, like crypto hedge funds, to traditional institutional investors like family offices and endowments. More institutional investors are engaging with digital assets, either directly or through service providers, as the potential impact of blockchain technology on financial markets—new and old—becomes more readily apparent.”
Of the different ways to invest, the survey indicated that institutions prefer (72 percent) purchasing investment products that hold or represent digital assets, such as futures. Meanwhile, purchasing cryptocurrency directly or buying equity in digital asset-related companies were both favorable to more than half of respondents (57 percent).
Jessop went on to elaborate on how interest among institutions has grown:
“Venture investment in the sector continues at a healthy pace, complemented by an increasing number of security token offerings (STOs), and the global regulatory environment remains cautiously constructive. Another indication of a growing ecosystem around digital assets is high transaction activity on the Bitcoin blockchain. Institutions are more aware of these developments now than they were six or twelve months ago, which is a positive sign for continued interest and adoption.”
Issues Around Custody
The bias towards purchasing investment products could represent a different issue in the industry—custody. The lack of readily available custody solutions means that institutional investors either need to take on excessive risk via self-custody or forgo investing in crypto.
According to the survey, 18 percent of respondents use third-party custodians, 13 percent perform self-custody, and 6 percent use non-custodial exchanges.
This is one of the issues that Fidelity Digital Assets intends to tackle as an institutional custodian. According to the firm’s white paper, self-custody for institutions is not palpable because of the regulations and legal obligations that large financial institutions must adhere to. As a result, self-custody via hardware wallets is not a feasible option for many of these investors.
Fidelity Digital Assets is working to increase access to bitcoin and other cryptocurrencies by providing the “same level of custodial service expected for other assets, despite the regulatory uncertainty.”
Institutional Perceptions of Cryptocurrency
Opinions about cryptocurrency are also changing. Nearly half of the respondents to Fidelity’s survey appreciated crypto as “innovative technology,” and cited crypto’s low correlation to other assets as its “most appealing characteristic.”
Of the different kinds of institutional investors, financial advisors and family offices were the most likely to be receptive towards crypto, with roughly three-fourths of both groups saying they view the characteristics of digital assets “most favorably.”
The outlook towards cryptocurrency wasn’t all positive. Respondents cited price volatility, lack of regulatory clarity, and a “lack of fundamentals” all as obstacles to investment. However, it seems that as infrastructure and awareness grow in the sector, so too does institutional investment. And, the trend seems unlikely to stop.