At Consensus 2023 last month, CoinDesk hosted two invitation-only investment manager roundtables. One for institutional investors (pension funds, family offices, sovereign wealth funds, university endowments, foundations) and one for asset allocators (funds of funds, asset managers, pension consultants).
With the help of Michelle Noyes of the Alternative Investment Management Association (AIMA), both roundtables were posed with the same 10 questions. We collected responses in real time and explored what they, mainly traditional finance (TradFi) investors, think about crypto assets (about half of asset managers are “crypto natives”).
After the collapse of FTX and Celsius and the ongoing crypto bear market, how do institutional investors feel about the future?
Nearly 70% of institutional investors and over 95% of asset allocators have a positive view of cryptocurrency investment, which turned out to be surprisingly bullish.
Another thing that made me aware of the bullishness of the respondents was the response to the question, “When will we see large-scale investment from institutional investors in crypto assets?” Answer. 32% of institutional investors say they already do, 16% within 1-3 years and 36% within 3-5 years (these respondents see themselves as long-term investors). (note that Only 4% said that large-scale investment by institutional investors would not happen.
Asset allocators were less bullish on the short-term outlook, with only 12% saying they “already have.” This is probably due to the experience of a bear market where AUM (assets under management) quickly dwindled. However, 46% within 1-3 years and 30% within 3-5 years. Unlike institutional investors, asset allocators may answer in favor of the assets they invest in.
Regulatory uncertainty is a concern
Given that regulatory uncertainty in the U.S. was the top concern for both groups (72% of institutional investors and 76% of asset allocators), the relatively bullish response from both groups is not surprising. Surprise.
I expected both groups to be decidedly bearish, neutral at best, and a bleak outlook. The investigation was conducted after receiving a so-called “Wells notice” from the U.S. Securities and Exchange Commission (SEC) informing Coinbase that it was considering measures such as suspension of operations, and SEC commissioner Gensler. Regulatory uncertainty was expected to continue for some time after the chief testified before the US House Financial Services Committee.
Some institutional investors also expressed concerns about cyber fraud and market manipulation. Multiple asset managers said they were concerned about complexity and volatility.
Answers to the question, “What event is most likely to trigger an investment in, or an increase in, investment in crypto?” highlighted the mounting demand.
The top answer in both groups was “clarifying the regulatory framework in the US” (60% of institutional investors and 64% of asset allocators). The second was “Certain Investment Opportunity” (32% of institutional investors, 27% of asset allocators).
If crypto assets want to attract significant investment from TradFi, they need maturity.
Improved due diligence
The series of events that occurred in 2022, including the FTX bankruptcy, did little to change respondents’ attitudes toward cryptocurrency investments, but it appears to have prompted many institutional investors to upgrade their due diligence processes. is.
85% of institutional investors improve due diligence by spending more time scrutinizing transactions (52%), demanding more transparency (52%) and looking deeper into operational risks (48%) I answered (multiple answers allowed for this question).
Institutional investors have improved due diligence due to the failure of the Ontario Teachers’ Pension Fund and the Quebec Savings and Investment Corporation (CDPQ), which recorded investments in FTX and Celsius as write-downs. It shows that a lesson has been learned that it should be at least as tough as investing in TradFi.
Asset allocators also plan to change their due diligence processes, spending more time scrutinizing transactions (36%), demanding more transparency (42%) and looking deeper into operational risks (36%). became.
But be careful. 27% said they have no intention of changing. Given what the asset allocator has gone through with the FTX bankruptcy, I couldn’t help but wonder why they were able to give such an answer.
What is Bitcoin?
Much has been said over the past year about the investment benefits inherent in Bitcoin (BTC), so I asked, “What do you think of BTC?”
- Store of value (20% for institutional investors/43% for asset allocators)
- Portfolio diversification (28%/30%)
- Inflation Hedging (4%/0%)
- Hedging against banking infrastructure (12%/15%)
- Reserve currency (12%/6%)
- means of exchange (16%/3%)
- Something like an infection (8%/3%)
The institutional investors’ response was predictable, with most viewing Bitcoin as a “store of value” and “portfolio diversifier”, as well as a “hedge against banking infrastructure”, a “reserve currency” and a “medium of exchange”. There were also a certain number of people who were thinking.
However, only 4% of institutional investors and 0% of asset allocators consider Bitcoin to be an “inflation hedge”, and in 2021, the formula used by TradFi analysts, cryptocurrency insiders and the media The expression was denied. Who would have thought that more people would think of Bitcoin as an “infectious disease” than as an “inflation hedge”?
Outlook for the year ahead
The final question was, “What are the investment themes that excite you most in the year ahead?”
The top answer for both was “tokenization of assets/real assets” with 52% for both. What surprised me at least was that 20% of institutional investors and 24% of asset managers said they were “long Bitcoin/Ethereum” and 16% of institutional investors said they were “games”.
This survey is not based on a scientific method and the responses may be biased. Respondents were Consensus participants who had been invited to the discussion.
That said, the overall bullish response bodes well for the crypto industry and crypto investments. But it is conditional on US federal and state-level regulators reaching a consensus that is, in the words of one environmental policy expert, “loud, long-term and legal.”
Dr. Angelo Calvello: Co-founder of Rosetta Analytics, an asset management company that uses deep reinforcement learning to build and manage investment strategies for institutional investors.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Consensus 2023/CoinDesk
｜Original: Consensus Survey: TradFi Investors Remain Bullish on Crypto’s Long-Term Prospects