The Growing Interest of Institutional Investors in Crypto Assets in Canada

The Growing Interest of Institutional Investors in Crypto Assets in Canada

Institutional investors in Canada have significantly increased their exposure to cryptocurrency assets over the past year, as revealed by a recent survey conducted by accounting firm KPMG. The survey, titled “Institutional Adoption of Cryptoassets,” garnered responses from 65 participants, including 31 institutional investors managing assets exceeding $500 million, and 34 financial services organizations. The findings of the report, released on April 24, indicate a notable rise in the engagement with crypto assets among institutional investors. In 2023, 39% of institutional investors reported direct or indirect exposure to crypto assets, reflecting a substantial increase from the 31% reported in 2021, according to the study.

A noteworthy trend identified in the survey was that one-third of institutional investors had allocated 10% or more of their portfolios to crypto assets, a notable increase from the figures reported two years ago, where only a fifth of investors had sizable crypto allocations. This uptick in allocation suggests a growing acceptance of cryptocurrency as a legitimate asset class among institutional investors. Kunal Bhasin, a partner at KPMG Canada’s Digital Assets practice, commented on the trend, noting that the interest in alternative asset classes, including crypto assets, has grown as investors seek hedges against inflation and reliable stores of value.

The survey also highlighted several driving factors behind institutional investors’ growing interest in crypto assets. A maturing market, improved custody infrastructure, and increased client demand were cited as significant factors contributing to the expansion of financial firms into the crypto space. The regulatory environment in Canada also played a crucial role in attracting crypto companies, with firms like Coinbase expanding their operations to the country due to its more favorable regulatory approach compared to the United States. Canada’s approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in 2021 was a pivotal moment that attracted local investors to the crypto market.

According to the report, institutional investors in Canada are gaining exposure to crypto assets through a variety of investment vehicles. Half of the surveyed investors reported exposure through Canadian ETFs, close-ended trusts, or other regulated products. Additionally, an increasing number of investors are accessing the crypto market through the stock exchange, with investments in companies like Galaxy Digital on the Toronto Stock Exchange seeing a significant rise compared to previous years. Derivatives markets have also witnessed a surge in institutional investor participation, with 42% of respondents now gaining exposure through this avenue.

Despite the overall positive sentiment towards crypto assets among institutional investors in Canada, there are challenges that need to be addressed. The decline in venture capital or hedge fund firms’ exposure to crypto assets suggests a shifting landscape that requires further examination. However, with the recent approval of spot Bitcoin ETFs in the United States and the favorable regulatory environment in Canada, the crypto market continues to present lucrative opportunities for institutional investors looking to diversify their portfolios and capitalize on the growing interest in digital assets.

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