The majority of institutional investors and wealth managers expect to increase their exposure to alternative asset classes such as cryptocurrency, research has found.
A survey of 100 of these professional investors, commissioned by investment manager Nickel Digital Asset Management (Nickel), revealed that 93 per cent expect professional investors to increase their exposure to cryptocurrencies.
This was followed by 74 per cent who expect to see an increase in allocation to real estate, 70 per cent for private equity, 70 per cent in distressed assets, 69 per cent for hedge funds, 63 per cent in infrastructure and 62 per cent for private debt.
When it comes to investing in cryptoassets, 79 per cent said securing quality custody services is a significant hurdle preventing institutional investors and wealth managers from investing in this market for the first time.
This was followed by 70 per cent who cited market volatility, 68 per cent who said the regulatory environment, 60 per cent who blamed the size of the market or liquidity and 58 per cent who said it is because it is not in mainstream indices. 57 per cent put it down to a lack of transparency and 52 per cent a lack of understanding.
Nickel has partnered with two custodians in the industry, US-based Fidelity and UK-based Copper Technologies to secure a custody solution and has adopted a multi-party computation model, a development that virtually eliminates the risk of private key hacking.
“We are not surprised to see professional investors planning to increase their exposure to cryptocurrencies – this new alternative asset class,” said Anatoly Crachilov, co-founder and chief executive of Nickel Digital.
“It has proved its resilience during the Covid-19 crisis, thus reenforcing uncorrelated nature of its returns when compared to fixed income instruments.
“In addition to this, new technology and sophisticated new entrants have transformed the custody offering available in the institutional market, allowing investors to hold digital assets with confidence for the first time.
“As more institutions allocate to cryptoassets as part of their routine portfolio composition, these assets will become increasingly mainstream and an integral part of portfolio allocations.
“However, bitcoin and other leading digital assets will remain volatile for the foreseeable future, as this technology goes through an early stage of adoption curve.
“Despite volatility, the long-term direction of travel is clear – institutional adoption and continued structural appreciation as a reflection of bitcoin’s inelastic supply and its immutable monetary policy.”