Fidelity: Almost 80% of Institutional Investors Say Crypto ‘Should be’ in Portfolios
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Fidelity: Almost 80% of Institutional Investors Say Crypto ‘Should be’ in Portfolios

Has the economic recession caused many investors to re-evaluate their options?
Neither the author, Kai Morris, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

The trading and investment platform, Fidelity Digital Assets, has released a study which found that 71% of institutional investors are planning to purchase or invest in digital assets at some point in the future. This is a clear indication that institutions are paying attention to the digital asset industry, and are very much prepared to jump in and get involved. 

Fidelity Says Institutions are Into Digital Assets

Fidelity’s report, surveying 1,100 institutional investors from the US, Europe, and Asia, has revealed several insights. The biggest of which being that 71% of institutional investors are planning to get involved in digital assets, and that 90% of those who were interested expect to see digital assets somewhere in their institution’s or client’s portfolios by 2026. This means that they expect their portfolios to feature either cryptocurrency or stocks from crypto companies. 

There are currently very few crypto companies that have available stocks, with Coinbase being the first. Although, there are others on the way, such as Circle, the company behind the USDC stablecoin, and within the next five years, there are sure to be many more.

The survey also read:

“Today, nearly eight in 10 institutional investors believe digital assets should be part of a portfolio. This belief is strongest in Asia, where adoption rates are highest; however, European and U.S. institutions are increasingly in agreement…”

The study also revealed that almost 90% of institutional investors found something appealing about digital assets, with one aspect being that they have a low correlation to other asset classes. However, one of the largest factors holding investors back is the volatility of the market.  

Institutional investors are also nervous about the possibility of market manipulation, which is incidentally one of the SEC’s main reasons why they are so reluctant to approve a Bitcoin ETF. Additionally, investors are apprehensive about the lack of fundamentals to gauge value, however, this might be a fallacy. 

A paper in 2016 published in the Economics Bulletin found that Bitcoin very much has fundamentals, although they are complex to grasp. A 2020 paper reiterated this, using a slightly different metric. Considering how Bitcoin is still the market leader, it makes sense to argue that if Bitcoin has fundamentals, then the rest of the industry does, too. 

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Digital Assets and the Pandemic

Tom Jessop, President at Fidelity Digital Assets, discussed the findings, noting that:

“The increased interest and adoption we’re seeing is a reflection of the growing sophistication and institutionalization of the digital assets ecosystem”

This should come as no surprise, as anybody who has been within the crypto industry for more than a year can tell it has come a long way. This growing sophistication has even seeped into the (much newer) DeFi industry, with Grayscale’s recent DeFi fund aimed directly at institutions. However, Jessop also provided another reason for people’s growing interest in digital assets– he argued that the economic responses to the COVID-19 pandemic have been a catalyst for corporations’ re-assessing of their portfolios.  

This is an important narrative, as it is fair to say that the pandemic has certainly had an effect on the current recession. In fact, with the US’s Index for All Urban Consumers (CPI-U) metric looking eerily similar to the 2008 financial crisis, it is seeming as if history is repeating itself. 

It is important to note that it was during the 2008 recession that Bitcoin was created, and with BTC reaching record numbers during the pandemic, a conclusion can be drawn that cryptocurrency has a direct relationship with severe and long-term economic downturns. What Jessop is essentially arguing is that, as the pandemic damages the economy, institutional investors are looking at alternatives to keep their finances afloat. Digital assets are the perfect candidate for that as they do not tightly-correlate with other asset classes. 

This means that in the same way retail investors may use crypto to hedge against uncertainty, so do institutional investors. With such a high number of these investors entering the market within the next five years, the digital asset industry is sure to undergo many changes, as its user-base moves further away from retail. 

What do you think is the main reason institutional investors are now interested in digital assets? Let us know in the comments below.