Institutional Investors Polled by Coinbase on Sentiment and Market Outlook

Coinbase has released the results of a survey it conducted between September 21 and October 27, in collaboration with Institutional Investor Custom Research Lab. The survey respondents were 140 institutional investors in the US, representing assets under management of about $2.6 trillion. The respondents for the survey were sourced independently, and the survey was conducted independently by Institutional Investor Lab. The survey explored the bear market and its effects on institutional investors. The results of the survey have been compiled into a report titled 2022 Institutional Investor Digital Assets Outlook Survey, written and published by Coinbase Institutional.

Institutional Investors Take a Long-Term Approach

The published results of the survey reveal that despite the crypto winter, institutional investors increased their allocations. Many institutional investors’ top motivation for investing in crypto is the desire to allocate to innovative technology. Digital assets are seen by institutional investors as the asset class that offers one of the most attractive opportunities to generate alpha.

The survey found that 62% of investors who are currently invested in crypto increased their allocations in the past twelve months, compared to just 12% of institutional investors who decreased their allocation and 26% who maintained the same allocation; this is evident that despite the fall in crypto prices, institutional investors have continued to take a long-term view of digital assets.

Respondents were also asked how they anticipate the percentage of their assets invested in cryptocurrency to increase, decrease, or stay the same in the next three years; 58% of respondents said they expect their digital asset allocation to increase, 6% expect it to decrease, while 36% expect their digital assets allocation to remain the same.

A majority of institutional investors believe that digital assets are here to stay. 71% of respondents agree that crypto valuations will increase over the long term, while 23.6% of respondents were neutral in their response. The short- and medium-term price expectations were not as positive as the long-term expectations. Only 7.9% of interviewed participants believe cryptocurrency prices will trend higher within the next 12 months; 53.6% think crypto prices will stay flat or range-bound, while 29.3% believe crypto prices will trend lower.

Institutional Investors Embracing Digital Assets: Evolving Crypto Investment Strategies, and Calls for Regulation

In past surveys, the main cited reasons for institutional investment in digital assets were its low correlation with other asset classes and its use as a hedge against inflation. The recent survey reveals that the reasons institutional investors choose to invest in digital assets are evolving. Some of the main reasons to invest in digital assets cited by respondents in this survey include yield opportunities, investing in innovative technology, arbitrage opportunities, higher returns than other asset classes, improved funded state, and opportunity for asset appreciation (buy and hold).

Responses from institutional investors when asked how they are currently deploying crypto or planning to deploy crypto within their investment framework, included access research and insights and to access market data; while about a fifth of surveyed institutional investors are deploying or planning to deploy crypto in their investment framework to develop or improve their internal infrastructure.

Survey respondents also expressed some of the concerns they have when considering investing in digital assets. The uncertain regulatory environment of digital assets was cited as a major concern by respondents. Other concerns include volatility (cited by 48% of respondents), risk of market manipulation, security of asset custody, and liquidity.

Institutional investors have long expressed their desire for a clear regulatory framework around digital assets. Events such as the Terra Luna collapse and the bankruptcy of Three Arrows Capital (3AC) were cited as some of the reasons regulation in the cryptocurrency sector is much needed. 4 in 10 respondents believe that more regulatory clarity will be a catalyst for growth in the sector. More investor knowledge and more real-world applications of digital assets were also cited as top catalysts for growth.

Takeaway

Institutional interest in digital assets has not diminished, despite the bear market. BNY Mellon has launched its digital assets platform. Fidelity recently opened the waiting list for Fidelity Crypto, its soon-to-be-launched digital asset trading platform; more institutional investors have already adopted digital assets to a significant extent.

The crypto market is still relatively new and small compared to traditional markets. The potential for upside and mass adoption is huge. The adoption of digital assets by institutions will lead to a clear regulatory framework, which will lead to more trust in digital assets, and will be a catalyst for adoption.