Erik Weijers, a month ago

Fidelity: 74% of institutions want to invest in crypto

Neer mind the bear market, institutional interest in crypto has grown. According to research from financial services behemoth Fidelity, 74% of surveyed institutions said they plan on buying digital assets in the future.

That's all nice but action speaks louder than words. What is the percentage of institutions that actually own crypto? Maybe surprisingly, it is rather high. It has grown from 52% to 58% globally. In Asia, this percentage is quite a bit higher than in the United States: 69% versus 42%. Europe scored a respectable 67%.

Why have the adoption rates grown, despite all the volatility and recent downturn? Part of the reason is the increase in infrastructure and investment products available to institutions. Not every institution wants to outright by BTC or ETH: they often look for traditional financial products such as ETF's. Spot ETF's (not just futures ETF's) for Bitcoin are available in countries such as Canada, Brazil and Australia. Notoriously, not in the U.S. yet...

So why is the crypto industry still quite small?

But hold on, we are talking about high adoption rates here. So why is crypto not a much bigger industry, with that level of institutional interest? Well, part of the reason is the kind of institutions that are involved. Fidelity counts 'high net worth individuals' (fancy way to say rich folks) as institutional. Another big category of institutional crypto investors are venture capital funds. But these are all relatively small fish. Pension funds, for example, are still largely absent from the crypto market. They are the guardians of trillions and trillions of dollars. 

The emergence of a new asset class

The overwhelming majority (88%) of the investors said they think digital assets are appealing because of the high potential upside made possible by the innovation. There's potentially another reason: namely creating diversity in a portfolio. Sure, Bitcoin is sometimes correlated with stocks, but this correlation comes and goes. In portfolio construction it is important to have uncorrelated assets. 

Is it conceivable that something so 'alien' to traditional investors like crypto becomes a new asset class? Well, the numbers of Fidelity's research certainly suggest so. Plus, there was a time when commodities (for example raw materials) were not included in portfolios. When investors realized that they protect against inflation, they started allocating a percentage. Commodities have evolved as an asset class since the 1990s. The development of commodity futures indexes was necessary for that to happen. 

If large institutional parties at some point will put five per cent or so into crypto, as they are doing now with commodities... ok, so much for the daily injection of hopium!

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