Digital Assets Gain a Buy-Side Toehold05.03.2019
Institutional investors are finding appeal in digital assets and many are looking to invest more in digital assets over the next five years, according to new research from Fidelity Investments®. According to the survey, about 22% of institutional investors already have some exposure to digital assets, with most investments having been made within the past three years. Four in ten respondents say they are open to future investments in digital assets over the next five years.
These findings are part of a Fidelity Investments research study to better understand how institutions, advisors, and investors think about digital assets both overall, and as part of an investment portfolio. More than 400 U.S. institutional investors were surveyed, including pensions, family offices, crypto and traditional hedge funds, financial advisors and endowments and foundations.
Almost half of the institutional investors surveyed (47%) view digital assets as having a place in their investment portfolios, but opinions vary on how these investors would prefer to hold digital assets in the future.
- 72% prefer to buy investment products that hold digital assets
- 57% prefer to buy crypto assets directly
- 57% prefer to buy an investment product that holds digital asset companies
“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,” said Tom Jessop, president of Fidelity Digital AssetsSM, a provider of custody and trade execution services for digital assets to institutional investors. “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.”
Institutions are overwhelmingly favorable about the appealing characteristics of digital assets. Nearly seven in ten respondents cited certain characteristics of digital assets as appealing.
Nearly half of respondents (47%) appreciate that digital assets are an innovative technology play
46% find digital assets’ low correlation to other assets among the most appealing characteristic
Financial advisors (74%) and family offices (80%) view the characteristics of digital assets most favorably
Among the obstacles to digital asset investments cited by respondents were price volatility, lack of clarity around regulation, the limited track record and lack of fundamentals.
“Institutions are doing the work to develop their own investment theses—but there’s more work to be done as it relates to describing digital assets and blockchain technology in terms that are familiar to them,” said Jessop. “For example, price volatility, which was a primary concern of survey respondents, may dampen as the underlying custody, trading and financing infrastructure continues to develop in a direction that traditional market participants are familiar with.”
Jessop continued: “Institutional sentiment mirrors many of the positive developments we’ve seen in the underlying ecosystem. 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.”
Custody and Counterparties
Many institutions showing interest in this space either own digital assets and need a custodian or they want to invest in digital assets, but first need a custodian. Eighteen percent are using third party custodians and another 13% are doing self-custody. Another 6% are using a non-custodial exchange. When gaining exposure to digital assets, investors overall prefer to deal with a traditional financial firm (37%) followed by dedicated crypto-focused financial firms (24%). Across all institutional segments, when considering a custodian for digital assets, 76% of institutions surveyed placed security and safety as their most important considerations.
About the Survey
Greenwich Associates conducted the study on behalf of the Fidelity Center for Applied Technology between November 26, 2018 and February 8, 2019 including 441 institutional investors in the U.S. including pensions, family offices, digital and traditional hedge funds, financial advisors and endowment and foundations. The survey was executed in association with Greenwich Associates. Approximately half of survey participants responded to an online survey and half via telephone interviews.
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