Today, according to Coinmarketrate.com the total capitalization of cryptocurrencies is 2.4 trillion US dollars, and an increasing part of this capital is accounted for by institutional investors.
The results of a study by Eurex, one of the world’s leading exchanges of the European Union trading in derivative financial instruments, show that most institutions either already invest in cryptocurrencies or are interested in becoming active. The main reasons for investing in cryptocurrencies are trading opportunities, growing confidence in cryptocurrencies as an asset class and portfolio diversification.
90% of all institutions consider cryptocurrencies as a trading opportunity. 24% of respondents stated that they have invested in digital assets, and 30% are generally interested in it. However, there is a significant difference between the buying and selling sides: more than half (53.66%) of respondents from the buying side said that they do not invest in cryptocurrencies, but almost 40% are interested and open to future crypto investments.
Currently, one third of the merchant institutions are trading or offering cryptocurrency trading. Most of the institutions interested in becoming active are banks and brokers. The existing institutions are mainly market makers and high-frequency traders. Overall, the responses show that cryptocurrency trading among institutional investors is still at an early stage.
Entry into the world of cryptocurrencies
The main reason for the transition to cryptocurrencies, 91.3% of respondents named trading opportunities in this space. This opinion is shared by all types of institutions. Less than half of the respondents really consider cryptocurrencies as an investment tool for long-term capital growth.
In second place is the growing trust in cryptocurrencies as an asset class, this opinion is shared by 68% of the surveyed clients. Improving the infrastructure and regulatory framework, as well as portfolio diversification, rank third, with 56% of the surveyed customers specializing in purchases and sales sharing this opinion.
Barriers to acceptance
In general, the majority of respondents interested in cryptocurrencies plan to invest in digital assets in the next 12 months. And 34% of respondents said they would do it in the next twelve months, 29% are likely to invest within six months. If we compare the respondents of sellers and buyers, the respondents from the buyer’s side spoke in favor of earlier investments in digital assets.
77.42% of clients surveyed believe that the lack of clarity in the regulatory environment
It is the biggest obstacle to the adoption of cryptocurrencies. 67.75% of customers said that the lack of solutions for storing digital assets and the security of third-party crypto asset storage services are an obstacle to the use of cryptocurrencies. Given the importance of regulatory clarity and secure infrastructure for financial institutions, it is not surprising that many respondents plan to position themselves in the medium term. This opinion is shared by all types of institutions.
Products with digital assets
The current interest in digital asset currencies is largely determined by the two leading cryptocurrencies, Ethereum and Bitcoin. The majority (56.62%) of buyers and sellers surveyed said that, in their opinion, Ethereum (30.59%) and Bitcoin (26.03%) offer the best investment opportunities. They are also predominantly mentioned by institutions that are already actively involved in cryptocurrency trading.
82% of Sell Side customers stated that they trade digital assets through the order book, 18% – through block transactions. The majority of institutions involved in the sale (48%) stated that they trade cryptocurrency derivatives, 30% trade digital assets directly, and 23% trade cryptocurrencies through an investment product (ETF/ETN). The majority of respondents (33%) said that futures (with cash settlements) and options are the most interesting investment instruments.
Forward cash settlement contracts deal with storage-related issues. Options can give clients access to a volatility risk premium, which is very high for cryptocurrencies. Institutional investors consider crypto derivatives to be the most important investment tool.
Perception of digital assets
59% of all surveyed customers have a positive attitude towards digital assets.
The most attractive feature was that cryptocurrencies represent a separate asset class, as stated by 77% of respondents. In second place is the consideration of cryptocurrencies as an innovative technological game, 69% of the surveyed organizations share this point of view.
Thirdly, the opinion that digital assets offer arbitrage opportunities, with 65% of surveyed institutions involved in selling and buying, share this point of view. However, more than 80% of respondents believe that digital assets are poorly regulated.
Most of the organizations that responded to the survey agreed that cryptocurrencies are an independent asset class and should be part of a diversified portfolio. However, the introduction of trading and investing in cryptocurrencies among financial institutions is still at an early stage. Only a smaller proportion of respondents are already active in this new asset class. However, the majority of inactive respondents plan to take steps in the near future. Other respondents are simply not allowed to invest in cryptocurrencies.
The greatest concern is the lack of regulatory security and reliable storage solutions. As a result, most respondents are looking for cash settlement futures to position themselves. Interestingly, Ethereum is attracting more interest from institutions than the market leader Bitcoin.