The latest survey carried out by Cointelegraph Research among 84 professional investors across the globe revealed that out of $316 billion in assets managed by the respondents, 3.3%, or approximately $10.42 billion, is invested in cryptocurrencies. Some surveyed investors reported over 50% exposure to digital assets, but respondents’ median percentage invested in cryptocurrencies stands at about 3%.
The risk-return ratio was the primary consideration when investing in crypto, as 44% of respondents rated this characteristic as “highly important.” Other factors deemed relatively less important were “diversification” and “my company is convinced that the technology will be important in the future.”
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More than just Bitcoin
As anticipated, Bitcoin (BTC) comes out on top in popularity since it is held by 94% of institutional investors who own cryptocurrencies. Ether (ETH), however, is close behind with 75%, and security tokens, along with stablecoins, follow with 31% each.
Cryptocurrencies are not the only digital assets considered for purchase by institutional investors as some of them plan to add tokenized securities and nonfungible tokens (NFTs) to their portfolios. Another attractive sphere for institutional investors is metaverse platforms, as projects in the sector have already attracted $120 billion in investments in 2022.
According to McKinsey, 59% of consumers are excited about transitioning their daily activities to metaverses. The industry as a whole is expected to reach a market impact of $5 trillion by 2030.
Institutional investors opt for crypto funds and derivatives
Despite preferring direct investments in crypto to investment funds and structured products, most institutional investors gain exposure to digital assets via passive funds, such as Grayscale’s Bitcoin Trust. Overall, yearly inflows into cryptocurrency trusts reached $9.3 billion in 2021, but a plunge in crypto prices in 2022 put strong pressure on the share prices of these funds, with passively managed ones taking the most beating.
Apart from acquiring shares of actively and passively managed funds, institutional investors get involved in the crypto derivatives market thanks to high liquidity. Spot markets offer a fifth to an eighth of the liquidity of derivatives markets for Bitcoin and a quarter to a fifth for Ether. Professional investors seem to be more interested in the latter asset, as its options open interest ($5 billion) recently surpassed that of Bitcoin’s ($4.8 billion).
Liquidity risk worries investors the most
Liquidity risks turned out to be the strongest obstacle to crypto adoption as 51% of respondents marked them as highly important. The more volatile the asset, the less conservative investors want to hold it on a balance sheet. In spring 2021, Tesla sold off some of its Bitcoin holdings to demonstrate to shareholders the liquidity the asset had. This went a long way in showing not only Tesla shareholders — but the rest of the equity markets as well — that holding digital assets, such as Bitcoin, could have its advantages.
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Cybercrime and fraud risks along with operational risks follow suit, a major change compared to the results of the survey by Cointelegraph conducted in 2020 when regulatory risks were perceived as the most severe. They are, however, still a significant obstacle, preventing one out of four professional investors from buying Bitcoin, according to the survey’s results.
This article is for information purposes only and represents neither investment advice nor an investment analysis or an invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual investment or other advice.