41% of asset management companies believe that cryptocurrencies will have a very strong growth in the future.

41% of asset managers expect significant future growth for cryptocurrencies.

Asset managers are optimistic about the near-term prospects of cryptocurrencies. Image source: Andrés Núñez/DL News

• Analysis firm Coalition Greenwich found that asset management companies and professional investors are preparing for significant growth in the cryptocurrency space over the next five years.

• Large investment firms are particularly interested in the potential of securities and real-world asset tokenization.

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• In the next 12 months, the demand for more data analytics tools by asset management companies may lead to explosive growth in data providers.

Despite the crypto winter, a staggering number of asset managers, hedge funds, and investors expect the digital asset industry to experience rapid growth over the next five years.

According to a research report by analysis firm Coalition Greenwich, the company interviewed 60 portfolio managers, traders, analysts, researchers, and managing directors in May and June of this year. These funds are distributed in the United States, United Kingdom, and the European Union.

Led by senior analyst David Easthope, the report found that 48% of the surveyed companies have crypto assets under management (AUM). Nearly 80% of respondents expect the total AUM of the digital asset industry to grow at a compound annual growth rate (CAGR) over the next five years, with 41% predicting a compound annual growth rate exceeding 11%, which is considered “very strong.”

Crypto asset management expected growth (Coalition Greenwich)

In addition, 25% of the surveyed companies have already developed specific digital asset strategies, and this number is expected to rise to 33% in the next two years.

The report also points out that these companies’ crypto divisions are increasingly staffed with experienced professionals, with 24% of companies currently having senior positions dedicated to digital assets.

Some companies are interested in directly managing various digital assets, including exchange-traded funds, digital asset securities, stablecoins, cryptocurrencies, DeFi tokens, and crypto futures. Other companies plan to provide support or trading services for these assets.

In terms of growth expectations in the industry, most funds hope to build products they are already familiar with, such as exchange-traded funds (ETFs). However, among the 23 respondents, 17% are interested in building crypto infrastructure and tokenized securities, and 9% are interested in participating in DeFi protocols and tokenizing so-called “real-world assets.”

Although the current regulatory environment has made survey participants cautious, they remain optimistic about the opportunities in the US market.

Despite recent enforcement actions taken by the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) against cryptocurrency companies, these two agencies are expected to hold a favorable attitude towards the industry.

The report said: “Some law enforcement actions and policy debates are conducted publicly, but more constructive debates are conducted behind the scenes of regulatory agencies.”

All Tokenization

One area of particular interest to fund managers is the tokenization prospects of financial assets and RWAs. Tokenization refers to the issuance of blockchain-supported tokens for assets such as cash-like instruments, commodities, securities, and even real estate.

BlackRock CEO Larry Fink once said, “The next generation of markets is the tokenization of securities.”

Global asset management firm Bernstein also agrees with his view, stating in June that tokenization is a $50 trillion opportunity.

The benefits of tokenization include real-time settlement and the inherent transparency of distributed ledgers.

The Greenwich Alliance found that 67% of market participants are particularly interested in the efficiency brought by this technology.

The report found that investment banks are also interested in digital bonds. Companies such as UBS Group, Deutsche Bank, JPMorgan Chase, Goldman Sachs, HSBC, BNP Paribas, and Royal Bank of Canada Capital Markets have all joined projects involving the issuance of crypto-native bonds.

Data Arms Race

However, the report states that asset management companies lack data analytics tools to support the expected growth of the cryptocurrency industry.

For example, banks may need to integrate on-chain data with their traditional off-chain accounting and management functions, especially if they decide to interact with DeFi protocols. But this hybrid infrastructure is still in its early stages.

Similarly, funds are also leveraging centralized exchanges, derivatives exchanges, decentralized exchanges, and market-maker liquidity to access market and pricing data.

The report states that the aggregation of this data is “often beyond the capabilities of managers, especially traditional managers.”

As a result, about 85% of research participants indicated that they may seek market data from external vendors rather than building their own internal systems.

Coalition Greenwich analysts expect this to result in an explosive growth of data provider services in the next 12 months.

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