Make Kitco Your Homepage

Institutional investors have been quietly buying the crypto winter dip

Kitco News

Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!

(Kitco News) - Institutional investors have long been heralded as the group that will propel cryptocurrencies to new heights with many expecting them to funnel trillions into the ecosystem ahead of the mainstream crowd. 

The present-day reality is that while institutions have been involved for a while, their impact hasn’t been the game-changer that many hoped for, but there remains hope for the future. 

According to a recently conducted survey of institutional investors by the business-to-business publisher Institutional Investor’s Custom Research Lab, 62% of those invested in crypto had actually increased their allocations over the past 12 months, despite the struggles of the wider market. 

That is in contrast to 12% of respondents who indicated that they have decreased their exposure to crypto over the past year, suggesting that the institutional class of investors remains bullish on the long-term prospects of digital assets. 

The survey, which was sponsored by Coinbase, was conducted between Sept. 21 and Oct. 27 and included responses from 140 institutional investor interviews.  

58% of investors indicated that they expect to increase their allocations over the next three years, and 59% said that they are currently using or are planning to use a buy-and-hold approach. 

Institutions continue to hold an overall positive sentiment towards the asset class, with 72% saying that digital assets are here to stay, but the majority (54%) expect the market to remain range bound for the next 12 months, with 12% expecting it to trend lower. 

On a longer time horizon, 71% of investors said they expect digital asset valuations to increase. 

The study also found that those who are currently active in the market are using the crypto winter to “plant seeds for the future” by accessing research and insights (44%) and accessing market data (36%). 19% of respondents indicated that they are deploying or planning to deploy crypto in their investment framework to “develop or improve their internal infrastructure.” 

The main reasons cited for getting involved in the crypto space include improving funded status, accessing yield opportunities, investing in innovative technology and the potential for long-term appreciation. 

These motivations have evolved from previous studies that showed cryptos having low correlation with other asset classes and being a hedge against inflation as the prominent incentives.   

The finding that has remained consistent across numerous surveys is that institutional investors see greater regulatory clarity as the main thing they are looking for before investing more in the digital asset sector. This was especially true for those who were planning to invest in the next 12 months. 

US lawmakers seek to exclude cryptos from retirement accounts

“Nearly half (47%) of investors consider events such as the Terra Luna crash and 3AC bankruptcy as a call to action for policy makers to create a level playing field and enact much-needed regulation,” the report said. “More than a third (36%) consider such events to be important reminders for firms to adopt better risk management strategies.”

As for what could help propel adoption forward, more than 7 in 10 said that the addition of more real-world applications is the top catalyst for growth in the asset class, while 4 in 10 cited more investor knowledge and regulatory clarity. 

The report concluded by saying “while acknowledging that recent market events have dampened the short-term outlook, investors are taking a long-term view. There is also strong evidence of broad institutional acceptance that crypto is here to stay.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.