Regulation
Japanese institutional investors await cryptocurrency deregulation
Japan is expected to abolish regulations that prevent limited partners, or institutional investors, from investing in cryptocurrencies and digital assets.
To assess Japanese financial institutions’ readiness for cryptocurrencies, Nomura recently surveyed 547 investment managers. The survey found that 54% of Japanese limited partners intention to invest in digital assets within the next three years. The main reason cited is portfolio diversification, but institutional investors are also showing interest in digital assets due to their low correlation to other asset types and their potential as a hedge against inflation.
“The report does not indicate the assets under management of financial institutions, but given Nomura’s size and market positioning, the survey findings are significant,” he said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “The fact that more than half of institutions intend to invest in digital assets represents a significant shift in sentiment, and this has changed just in the last few years.”
Enthusiasm for the ETF
US institutional investors have made a substantial impact on the cryptocurrency market following the launch of 11 bitcoin exchange-traded funds in January. These ETFs are managed by some of the world’s largest financial institutions, including BlackRock, Fidelity, and Grayscale.
Since the launch, many large banks and hedge funds have made an estimate $3.5 billion stake in bitcoin ETFsincluding Wells Fargo, JPMorgan and Morgan Stanley.
“The United States has the strongest stock market and the most value traded outside of perhaps the foreign exchange markets,” Hugentobler said. “The launch of ETFs will continue to increase global awareness and stimulate inflows over time. It will also spur the creation of additional Solana- or Doge-based crypto ETFs, where investors can further diversify and gain access to higher beta investment tools within the digital asset ecosystem.”
Regulatory risk
The Nomura report found that ETFs are the vehicle of choice for Japanese institutional investors. Approximately 53% of respondents said they would invest through ETFs, while a smaller percentage (31%) indicated they would invest directly in digital assets.
While Japanese investment managers have become increasingly positive about cryptocurrencies, they have raised some concerns. Chief among them has been the regulatory risk associated with cryptocurrency investments. All major U.S. cryptocurrency exchanges have been investigated lately, and bitcoin ETFs only received approval after a lengthy legal battle with the U.S. Securities and Exchange Commission.
For these reasons, most cryptocurrency industry experts believed the SEC he probably wouldn’t have approved Ethereum ETF. It was a significant victory for the cryptocurrency industry when US regulators recently approved new ETFs, something their Japanese counterparts have likely been watching closely.
“As more vehicles become available, such as Bitcoin or Ethereum ETFs, awareness will increase and so will exposure,” Hugentobler said. “All of which, in turn, will lead to a higher floor price, which further consolidates the space and creates a positive demand feedback loop.”