The Economist report: Institutional investors continue to increase digital asset allocations

2024.08.29

The Economist report: Institutional investors continue to increase digital asset allocations

The report, commissioned by OKX, shows that an increasing number of institutional investors are researching new digital assets and planning to include them in their portfolios.

2024.08.29 - 05:56:33

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The report, commissioned by OKX, shows that an increasing number of institutional investors are researching new digital assets and planning to include them in their portfolios.

• Institutional investors continue to show confidence in digital assets, embracing tools such as staking and derivatives alongside holding cryptocurrencies. • Despite sustained optimism, challenges remain for further adoption. By 2027, institutional investors are expected to increase their portfolio allocation to digital assets to 7%. The market size of tokenized assets is projected to surpass $10 trillion by 2030, indicating significant industry growth. However, this new report commissioned by OKX and produced by The Economist highlights that challenges persist. Currently, asset managers allocate 1%–5% of their assets under management (AUM) to digital assets. The report states: “Digital asset allocations within institutional portfolios have primarily focused on cryptocurrency trading, with Bitcoin and Ethereum being the main investment categories. Institutions are displaying growing optimism toward digital assets, driven by an expanding range of investment tools beyond just cryptocurrencies.” According to the report, 51% of institutional investors are considering spot cryptocurrency allocations, 33% are looking into staking digital assets, 32% are exploring cryptocurrency derivatives, and 36% are considering crypto index-tracking funds. Now, a growing number of institutional investors are looking beyond simple crypto holdings to invest in other digital asset classes such as staking, crypto derivatives, and tokenized bonds. Notably, market developments in digital assets have been particularly prominent—examples include the European Investment Bank’s £50 million ($66 million) digital-native bond, the $1 billion tokenized U.S. Treasury bill, and Hong Kong’s HK$6 billion ($766.8 million) digital bond. The report emphasizes that custodians play a crucial role in enabling institutional adoption of digital assets. Eighty percent of traditional and crypto hedge funds surveyed use custodians. In Asia, many crypto custodians are obtaining licenses equivalent to those held by traditional financial counterparts—for example, Trust or Company Service Provider (TCSP) licenses in Hong Kong. Meanwhile, Singapore’s Monetary Authority has established its own dedicated custody framework for crypto. Nonetheless, challenges remain, including a lack of regulatory coordination. The report notes: “The absence of harmonized regulatory frameworks across jurisdictions creates uncertainty, making it difficult for institutional investors to meet compliance requirements and manage risks associated with regulatory changes.” It praises Europe’s MiCA regulation as an effective regional regulatory model. The authors add: “Divergent approaches across regions may lead to market fragmentation and complicate institutions’ integration of digital assets into their portfolios.” The report also identifies fragmented liquidity as another key concern for investors, as it can contribute to market instability and make it harder for institutions to execute trades efficiently in the digital asset space. It states: “Liquidity fragmentation across different blockchain networks and digital asset markets may lead to pricing inefficiencies, posing significant challenges for institutional investors executing large-scale trades.” Some are turning to technologies such as native token transfer to address this issue, which is seen as an evolution. As CoinDesk previously reported, native token transfers allow tokens to move seamlessly across chains while preserving their unique properties and ownership—unlike wrapped assets, which create multiple non-fungible versions. OKX’s report reaches conclusions similar to a recent survey by Nomura, which found that 54% of Japanese institutional investors plan to invest in crypto within the next three years, with 25% expressing positive sentiment and intending to allocate 2%–5% of their AUM to digital assets.

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The Economist

The Economist report: Institutional investors continue to increase digital asset allocations

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