Digital and crypto on the investment agenda

A new study of institutional investors and wealth managers responsible for around $108.4 billion in assets, shows that 85% now have dedicated teams reviewing cryptocurrencies and digital assets.

The research, commissioned by London-based Nickel Digital Asset Management, Europe’s largest regulated digital assets hedge fund manager, found that more than a fifth (21%) of these teams were formed within the past three months, with 42% established in the previous quarter of 2021.

Almost a third (31%) have been in place for six months to a year ago, while only 5% have operated for longer. Only 7% of those who do not have dedicated teams say they have no plans to set them up.

One third of professional investors (34%) favour alpha-focused funds for investing in crypto and digital assets, while only 20% prefer beta strategies. A quarter prefer digital investment opportunities from private equity and venture capital businesses, while 21% have no preference.

The three main reasons for investors preferring alpha crypto/digital strategies, were to take advantage of market inefficiencies (62%), greater freedom to invest in a wider variety of assets (56% ), and a better way to manage volatility (53%).

Anatoly Crachilov, CEO and founding partner of Nickel Digital, said the digital assets market has delivered strong growth since the start of the Covid-19 crisis, with $2 trillion market capitalisation, and is viewed as an emerging asset class that can no longer be ignored.

“The exponential growth of this market and intense flow of innovation coming from the space helps explain why so many professional investors have established in-house teams dedicated to analysing these markets.”

“While expectations of long-term returns from beta strategies significantly exceed those of alpha strategies, it is natural to see large allocators gravitating towards low-volatility alpha solutions as their first step into the crypto space.”