Why do 90% of institutional investors have a positive view on cryptocurrency but still not buy it?

Why do most institutional investors like cryptocurrency but not invest in it?

Due to unclear legal regulation, some buyer institutions have expressed interest in cryptocurrency assets, but only as an observation.

Recently, an interesting survey was seen.

Laser Digital, a cryptocurrency venture capital division under Nomura Securities in Japan, conducted a survey covering 21 countries in Europe, the Middle East, Asia, South Africa, and Latin America, with over 300 institutional investors and a total of $4.9 trillion in funds, including wealth management institutions, pension funds, hedge funds, investment funds, and insurance asset management institutions.

The survey results show that 96% of respondents recognize the potential of cryptocurrency, believing that digital assets “represent opportunities for investment diversification” and are comparable to traditional asset classes such as fixed income, cash, stocks, and commodities.

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Regarding cryptocurrency assets, more than three-quarters (82%) of professional investors hold an optimistic view of the overall prospects of the cryptocurrency industry, with a particular emphasis on their optimistic attitudes toward bitcoin and ethereum in the next 12 months, with only a small fraction (3%) expressing negative outlooks, and the remaining 15% maintaining a neutral stance.

In terms of investment choices, 88% of respondents said they or their clients are actively considering investing in digital assets. Specifically for bitcoin and ethereum, nearly half (48%) of the participants view them as the basic elements of the emerging Web 3.0 economy, providing long-term investment opportunities, while another quarter (26%) view these assets as highly speculative assets with long-term investment prospects, and the remaining 26% primarily view them as highly speculative assets.

Institutional investors are not just focused on the two major cryptocurrencies. 88% of respondents said they see value in other carefully selected cryptocurrencies beyond bitcoin and ethereum, with only 12% believing that expanding to other cryptocurrencies is not valuable.

Investors have different maximum allocations for digital assets within their risk range. 22% of respondents said they can invest up to 5% of their investment portfolio, while 30% of respondents said they can allocate up to 4% at most.

Looking ahead, nearly half of participants (45%) said they or their clients plan to have a total exposure of 5% to 10% to digital assets in the next three years, with only a small fraction (0.5%) mentioning that they have not had any contact with digital assets during this period.

Regarding preferred exposure strategies in the digital asset category, momentum (the ability to profit when prices continue to move along past trends) has become the most popular choice, favored by 80% of investors. Value (the ability to profit when prices return to some previous equilibrium state) is the next most popular choice, favored by 68% of respondents. Finally, carry (the ability to profit when prices do not change) is favored by 61% of respondents. However, a large majority (77%) indicated a preference for risk strategy combinations that include all of these factors.

These all seem like very optimistic data, but there are also two “risk factors” worth noting:

• 90% of professional investors surveyed said that obtaining support from “large traditional financial institutions” for any cryptocurrency fund or investment tool is very important before they or their clients consider investing.

• About 75% said that “legal or regulatory restrictions” could prevent their companies or clients from investing in cryptocurrency-related funds or products.

To sum up, buying institutions and their clients are curious or interested in cryptocurrency assets, but unclear legal regulations and lack of entry tools such as ETFs put them in a wait-and-see state. This is similar to the author’s practical experience, where some buying institutions contacted expressed interest in cryptocurrency assets, but are not investing yet but are keeping an eye on it.

Compared to the stock market, the cryptocurrency world lacks tools or products such as ETFs and public funds, which directly allow most retail investors to gamble in the market, rushing in and out.

During the “Grayscale Bull Market”, cryptocurrency industry practitioners once shouted “there will be no more big bear markets in the future, because the future is dominated by institutions”, but the so-called institutions either went bust or ran faster than anyone else.

From this perspective, Bitcoin ETFs are significant.

As former chairman of the US Commodity Futures Trading Commission (CFTC), Timothy Massad, said in a blog post: “Bitcoin ETFs will become a way for retail investors to invest in cryptocurrency without actually buying it and dealing with the complexities of custody.“

Investing in a Bitcoin ETF is equivalent to indirectly buying Bitcoin. Compared to traditional trading methods: on the one hand, the threshold for trading is lower, eliminating the learning cost for investors to learn about digital currency trading platforms or off-exchange trading operations, wallet storage, and private key management; on the other hand, it avoids platform risk (theft by the exchange and insufficient regulation) and self-holding risk (improper storage).

In addition, Bitcoin ETFs provide institutional investors with a compliant investment channel for investing in Bitcoin. This means that traditional fund companies can also indirectly bring in more entry funds through ETFs to realize Bitcoin investment portfolios. For example, the very important institutional investor in the US market, pension funds, cannot directly invest in the cryptocurrency market due to policy restrictions. But if Bitcoin is packaged as an ETF, pension funds can include it as a compliant cryptocurrency investment tool in their portfolios.

However, Bitcoin ETFs face a regulatory barrier. At least, the current US regulation of cryptocurrency assets is in an unfriendly and even chaotic state, with no clear compliance guidelines. The recent SEC lawsuits against Coinbase and Binance have sent a signal that the US is tightening its supervision of cryptocurrencies. Almost all cryptocurrency assets can be labeled as “securities” and then “beaten up”.

Therefore, both individuals and institutions are waiting for regulations to be implemented. They are not afraid of a “quick and decisive” approach, but rather a vague one that keeps dragging on for 1 or 2 years. Life is short. How many bull markets can we experience?

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