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Institutions remain highly interested in crypto ETFs - survey

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(Kitco News) - Institutional interest in the digital asset sector remains high despite the struggles that the industry has faced over the past year and a half, with a majority of asset managers indicating that they are “extremely interested” in Exchange Traded Funds (ETFs) that offer cryptocurrency-related exposure.

According to the 2023 Global ETF Investor Survey released by financial services firm Brown Brothers Harriman (BBH) on Monday, 74% of the institutional investors surveyed said they are “extremely” or “very” interested in allocating more of their portfolios to cryptocurrency exposure. A quarter of respondents indicated that they intend to increase their allocation in 2023, representing a slight decrease from 33% in 2022.

The survey included responses from 325 ETF institutional investors, financial advisors, and fund managers from the U.S., Europe, the U.K., and China to identify key trends and areas of innovation in the ETF market.

While interest remains high, it's clear that the events of 2022 have impacted demand, as 74% remain interested while only 25% have clear intentions to purchase over the next 12 months, representing a drop of 8% from the previous year.

Interest in cryptocurrency was similar across the different regions surveyed, with 25% of respondents from the U.S., 24% of respondents from Europe, and 27% of respondents from China indicating plans to purchase over the next 12 months.

Planned allocations to ETF in the next 12 months. Source: Global Investor ETF survey

“Despite the rocky landscape for crypto last year, cryptocurrency and digital asset-themed ETFs are surprisingly still sought after,” the report said. “48% of investors plan to add them, dropping only 6% from last year. As investors adapt to volatility, they are diversifying their portfolios and adding more innovative products. Even with a tumultuous year in crypto, interest hasn’t cooled entirely.”

The 48% figure was derived from asking the question, “Which thematic strategies do you plan to add to your portfolio in 2023?” As shown in the table below, cryptocurrencies fell in the middle of the pack with 48% saying they planned to add crypto ETFs to their portfolio.

Thematic strategies being added to portfolios in 2023. Source: Global Investor ETF survey

Internet and technology-related ETFs received the highest level of interest, followed by robotics and artificial intelligence, which is not surprising given the recent rise of ChatGPT and similar offerings from other companies.

Interest in digital asset ETFs is highest in China (58%), followed closely by the U.S. (55%).

58% of institutions now hold crypto, up 6% from 2021 - Fidelity

BBH suggested that the biggest barrier to adoption was actually the lack of clear regulations, which are needed to help provide more “comfort” when doing business with the crypto sector.

“Initiatives such as the draft regulation from the EU’s Markets in Crypto Assets proposal is expected to significantly ‘derisk’ investments in crypto assets for asset managers and provide an ‘additional layer of comfort’ for fund managers to engage with crypto exchange,” BBH wrote.

For investors in the U.S., the top crypto ETF options are the ProShares Bitcoin Strategy (BITO), available on the New York Stock Exchange (NYSE), and the Bitwise 10 Crypto Index Fund (BITW), which tracks the top 10 largest cryptocurrencies by market cap.

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