BNY Mellon Believes ‘Digital assets are here to stay’ – 2022 Survey Results Revealed

Following increasing demand for digital assets management services, BNY Mellon, the world's largest custodian bank, now offers cryptocurrency custody services to its clients. “We are on a journey towards a future where blockchain and related capabilities will transform the financial services landscape,” says Mike Demissie, BNY Mellon's Head of Digital Assets and Advanced Solutions.

A Catalyst for Crypto Adoption

Since its introduction over a decade ago, digital assets — in the form of cryptocurrencies — have become mainstream. This asset class, once regarded by many as a tool to perpetrate illegal activities, is now being adopted by corporations, retail and institutional investors, and governments. There has been an increase in the number of traditional investors who are exploring and adopting digital assets. Traditional investment managers are adding digital asset management to their service repertoire to meet clients' ever-increasing demands. The excitement around the opportunities that blockchain technology (the underlying technology that powers most digital assets) presents has spread from techies and decentralization maximalists to retail and institutional investors.

BNY Mellon is one of the custody providers taking a leading-edge role in providing a hybrid asset management platform where both traditional and digital assets are offered to clients. In a recent BNY Mellon-sponsored survey conducted by Celent, data shows that 91% of institutional investors are interested in investing in tokenized products, while 41% have already added cryptocurrency to their portfolio. The data in the conducted survey spans responses from over 270 institutional investors across the globe, including asset managers, asset owners, and hedge funds.

BNY Mellon has thoroughly followed through on its previously announced plans to adopt digital assets following the launch of its Digital Assets Unit in February 2021. BNY Mellon as a trusted and long-time manager of traditional assets will likely be the digital assets platform of choice for most traditional clients, especially those who might have a hard time understanding the core technology behind digital assets or are simply not interested in the intricacies and not willing to put in the technological investment. At the moment, only Bitcoin and Ethereum will be offered to clients. There is, however, a possibility of expansion into offering more digital assets in the future, including stablecoins, digital securities, central bank-issued digital currencies, and a slew of others.

The Celent report shows that 70% of respondents agree they would increase their digital assets activity if trusted and recognized institutions provide digital asset custody and execution services, among others. Trust is essential with every financial innovation; hence, it is logical to assume that clients of custodial banks will only adopt digital assets, like cryptocurrencies if they trust the platform that offers such assets. With the current recurring incidents of hacks of blockchain networks and DeFi protocols, with some hacks bringing complete ecosystems and their activities to hour-long standstills, the need for a trusted, regulated party to drive the institutional adoption of cryptocurrencies looms.

BNY Mellon said it outsourced fintech firms, including Fireblocks and Chainanalysis, in developing its digital asset platform “to ensure it meets the present and future security and compliance needs of clients across the digital asset space.”

The high Annual Percentage Yield (APY) in DeFi is also one of the factors attracting traditional investors to digital assets. The Celent report revealed that respondents identified support for staking and tokenization as key services they would consider in selecting a digital asset provider.

Institutional Interest in Tokenization and Digital Cash

Asset tokenization is when physical or digital assets are converted to tokens and represented on a distributed ledger such as a blockchain. Cryptocurrency tokens have gained popularity in their use to uniquely represent assets on the blockchain. This unique representation on the blockchain eliminates duplicity. The Celent survey results show that 97% of respondents agree that tokenization will revolutionize asset management and would be good for the industry if it eliminates bottlenecks in settlements, while 91% of respondents expressed interest in investing in tokenized products. The report also states that private equity and hedge funds are the assets investors would most like to see tokenized.

The tokenization of an asset shares similarities to the process of securitization; however, asset tokenization is carried out on the blockchain and thus possesses qualities such as transparency and immutability. Tokenization will also enable the support of fractional sales or ownership of assets.

In the area of utilizing cryptocurrencies as a medium of settlement, data from the Celent report show that 77% of institutional investors are already utilizing or exploring blockchain-based currencies for cross-border settlements. Cryptocurrencies have gained huge popularity as an easy means to exchange value and reach monetary settlements. Blockchain-based companies like Stellar and Ripple have built powerful suites of products and tools to facilitate cross-border and interbank settlements, with ease. Stablecoins are also widely used in peer-to-peer settlements. 88% of Institutional Investors are comfortable with a digital representation of cash using blockchain-based technology. However, more than two-thirds of respondents say they would only use digital cash for payment and settlement if it is issued by a trusted and highly-reputable institution.

Supporting Commentary

One of the biggest questions that have been asked by the earliest adopters of cryptocurrencies has been: When will cryptocurrencies attract institutional investments?

The Celent report has revealed that massive institutional interest in digital assets and their adoption might happen sooner than expected. Though institutional investors see digital assets and cryptocurrencies as nascent and fledgling, they believe the underlying technology has the capabilities to disrupt the financial sector. This belief and faith in blockchain technology has drawn and will continue to draw large institutional investments. The Celent survey was conducted shortly after the TerraUSD/LUNA implosion, yet 88% of respondents say they are still planning to move forward with their current plans for digital assets adoption.

Cryptocurrencies have come a long way. Bitcoin, once infamous for its use on the Silk Road darknet marketplace, is finding its place among respectable assets; this proves that digital assets are here for good.