The latest survey conducted by Cointelegraph Research among 84 professional investors from around the world has revealed that, of the $316 billion in assets under management by the respondents, 3.3%, or approximately $10.42 billion, is invested in cryptocurrencies. Some of the investors surveyed declared to be exposed to more than 50% of digital assets, but the average percentage of the respondents invested in cryptocurrencies is around 3%.
The risk-return ratio was the main consideration when investing in crypto, with 44% of respondents rating this feature as “very important”. Other factors considered relatively less important were “diversification” and “my company is convinced that technology will be important in the future.”
Download the report on the institutional demand for cryptocurrencies worldwide in 2022 on the Cointelegraph Research Terminal site
More than just Bitcoin
As expected, Bitcoin (BTC) is leading the way in terms of popularity, being held by 94% of institutional investors who own cryptocurrencies. However, Ether (ETH) is close behind at 75%, and security tokens, along with stablecoins, follow at 31% each.
Cryptocurrencies are not the only digital assets that institutional investors are considering buying, as some of them plan to add tokenized securities and non-fungible tokens (NFTs) to their portfolios. Another attractive area for institutional investors is metaverse platforms, as projects in the sector have already attracted $120 billion in investment by 2022.
According to McKinsey, 59% of consumers are excited about transitioning from their daily activities to the metaverses. The sector as a whole is expected to reach a market impact of USD 5 trillion in 2030.
Institutional investors opt for cryptocurrency funds and derivatives
Despite preferring direct cryptocurrency investments over mutual funds and structured products, most institutional investors gain exposure to digital assets through passive funds, such as Grayscale’s Bitcoin Trust. Overall, annual inflows into cryptocurrency funds reached $9.3 billion in 2021, but the 2022 cryptocurrency price crash put severe pressure on cryptocurrency fund prices, with passively managed funds bearing the brunt.
In addition to buying shares of actively and passively managed funds, institutional investors get involved in the crypto derivatives market thanks to the high liquidity. Spot markets offer one-fifth to one-eighth of the liquidity of derivatives markets for Bitcoin and one-fourth to one-fifth for Ether. Professional investors seem to be more interested in the latter asset, as its open interest in options ($5 billion) has recently surpassed that of Bitcoin ($4.8 billion).
Liquidity risk is the one that most worries investors
Liquidity risks turned out to be the biggest barrier to cryptocurrency adoption, with 51% of respondents rating them very important. The more volatile the asset, the less conservative investors want to keep it on a balance sheet. In the spring of 2022, Tesla sold part of its Bitcoin holdings to demonstrate to shareholders how liquid the asset was. This went a long way in proving not only to Tesla shareholders – but also to the rest of the stock markets – that holding digital assets, such as Bitcoin, could have its advantages.
To access research and databases, visit the Cointelegraph Research Terminal site
It is followed by cybercrime and fraud risks along with operational risks, a major change from the results of the Cointelegraph survey in 2020, when regulatory risks were perceived as the most serious. However, they remain a major hurdle preventing one in four professional investors from buying Bitcoin, according to the survey results.
This article is for informational purposes only and does not represent investment advice or investment analysis or an invitation to buy or sell financial instruments. Specifically, the document is not a substitute for individual investment or other advice.
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