Bitcoin
Insights from 2023 and expectations for 2024
2024 was an active year for crypto investments. Connor Farley of Truvius analyzes institutional investment trends, interests and perceptions and how they have evolved in recent years.
I would like to welcome a new collaborator, Marissa Kim from Abra Capital Management, which provides insights in the Ask an Expert section on how to support a client’s investment interest in cryptocurrencies.
Since 2019, the crypto-focused subset of Fidelity’s institutional business has published research called the “Digital Asset Study for Institutional Investors,” measuring trends in crypto investment sentiment and adoption among institutional investors around the world.
General, the 2023 survey portrays a generally robust but still mixed institutional outlook towards crypto after a turbulent 2022.
Trends that reflect positive feelings
Trends that reflect negative sentiment
It is important to note that the latest survey only covers May 30, 2023 to October 6, 2023, missing a critical year-end period during which bitcoin rose from approximately $28,000 to $42,300, driven largely by anticipation of SEC approval of spot bitcoin ETFs. which occurred later in January 2024. Perceptions have likely evolved significantly since early 2024, following the crypto market cap rising above $2.5 trillion, Bitcoin rising to nearly $74,000, and the approval of the SEC of Bitcoin and, soon, of Ether spot ETFs.
Arguably, the biggest market moments in the history of digital assets occurred after this survey was conducted, namely actions that reduce regulatory uncertainty, which can, in turn, reduce price volatility and improve investment options for investors.
Will the SEC’s Surprise Approval for Spot Ether ETFs Ease Regulatory Concerns Among Institutions?
The digital asset market has begun the transition from early adoption to mass adoption. A radical shift in industry leadership, product development, and fiat commitment swept crypto in 2023 and early 2024, enabling a new set of increasingly institutional-grade on-ramps into the asset class. This shift may take some time to infiltrate institutional allocations more fundamentally, but the rapid adoption of spot bitcoin ETFs following SEC approval (aggregate ETF AUM doubled from roughly $30 billion in January to nearly $ 60 billion in mid-June) may provide early indications of increased institutional interest in crypto.
Will concerns about price volatility persist?
Digital asset class volatility remains high compared to other asset classes, but has been declining over time and may continue to decline as regulatory conditions improve and institution-friendly product offerings improve. potentially stabilize markets. Investors should also consider not only crypto volatility, but the risk-adjusted return profile of various blockchain assets.
Will institutional investments flow primarily into spot BTC and ETH ETFs, or will they be distributed across investment structures (SMAs, private funds, VC) offering diversified exposure to blockchain assets beyond the two mega caps?
Backed by major advances in industry infrastructure in 2023, spanning custody, trading and asset management, investors now have a better – but still nascent – range of product options and investment platforms to not only help avoid the pitfalls early adopter risk, but also to exploit early adopter rewards. These options, in addition to ETFs, include the increasingly prevalent direct index vehicle SMA.
With the combined rise of blockchain data providers and the growing presence of systematic digital asset managers, will institutions become more familiar with the fundamentals of cryptography and digital asset valuation methods?
About 37% of 2023 respondents cited a “lack of fundamentals for assessing appropriate value” as a barrier to investment. This large number reflects the emerging nature of the asset class and the learning curve associated with measuring blockchain value. However, this number is down from 44% in 2021. It may continue to fall as investors become increasingly familiar with blockchain technology and the unique ways of analyzing a protocol’s value to users.
Q: What else should I think about other than buying and holding Bitcoin?
A: If clients want exposure to digital assets, it is advisable to diversify that exposure, as you would with traditional assets. Bitcoin should be the core of every portfolio. Still, ETH and SOL are increasingly considered, as Ethereum is becoming the preferred chain for institutional applications and Solana is for consumer payment applications. Financial advisors should not leave their clients’ assets on exchanges, but use secure custody solutions to retain ownership and access to their clients’ assets.
Q: Should I get exposure through ETFs?
A: While ETFs are convenient for retail investors, they lack the flexibility and opportunities available from holding real digital assets. Digital assets trade 24/7, unlike ETFs, which only trade during market hours. Furthermore, ETFs do not allow for income generation, which can be an attractive income stream and cannot be used as collateral for loans. For customers with large BTC portfolios, borrowing against their digital assets may be preferable to selling and incurring capital gains tax.
Q. Which customer demographics are digital assets best suited for?
A: Understanding the suitability of digital assets requires assessing clients’ risk tolerance and wealth management goals. For low-risk clients, digital assets can serve as a store of value, with opportunities to generate attractive returns through staking. Instead, high-risk clients may want access to venture capital investments in early-stage blockchain projects or higher-yield DeFi investment strategies. Tailoring these approaches to individual needs helps integrate digital assets into a comprehensive wealth management plan.
Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.