With over US$8.3 trillion in total digital assets, Boston-based Fidelity Investments is one of the largest asset managers in the world. So when the company's CEO Abigail Johnson announced in 2015 that they were launching a Bitcoin (BTC) mining experiment, the world paid attention.
Fidelity's involvement in the crypto space has brought the industry some much-needed credibility --- or at least some institutional weight. Indeed, Fidelity now has a fully-functioning arm dedicated to cryptocurrency. That envisions "a future where all assets are issued natively on blockchains or represented in tokenized format."
Fidelity Digital Assets is a full-service, enterprise-grade platform for securing, trading, and supporting investments in virtual goods. Among the company's investments in the crypto space are blockchain analytics firm Coin Metrics and publicly-traded Asian digital asset company BC Group.
So it was no surprise when the world also paid attention when Fidelity published its annual Institutional Investors Digital Asset Survey in June 2020. This year's study surveyed nearly 800 investors across the United States and Europe, and as always, we dug into the report to find out what it's all about.
In this article, we'll find out the following:
- Are institutional investors investing in virtual goods?
- What do institutional investors think of virtual resources?
- Why do institutional investors invest in virtual assets?
Note: For purposes of brevity and readability, we shall simply refer to institutional investors as "investors" in the rest of this article. All data graphics used in this article were obtained from the abovementioned report.
Are institutional investors investing in virtual goods?
1. 36% of investors currently invest in digital assets
- Mostly crypto funds (hedge funds and venture capital funds), high net-worth individuals, financial advisors, and family offices
- US investors with investments in digital assets increased to 27% from 22% in 2019.
- Factors driving ownership include: the entrance of incumbent custody, trading, and derivatives service providers; the expansion of the types of regulated derivatives available to institutional investors; Facebook's announcement of and regulatory hearings around the consortium-based Libra project, which fueled awareness of digital assets; and bitcoin ETF applications
2. Over 60% of investors buy digital assets directly
- 59% of US investors invest in these assets directly, up from 55% in 2019. This may be due to greater awareness and maturing custody offerings.
3. Bitcoin continues to be the digital asset of choice for both traditional investors and crypto funds, with over 25% of respondents holding Bitcoin
- In addition to crypto funds, the segments that drove this metric included financial advisors and high-net-worth individuals
- 11% of investors own Ethereum (ETH), held primarily by crypto hedge and venture capital funds
4. 22% of US investors in digital assets have exposure via futures
- A substantial increase relative to 9% of US investors surveyed in 2019
- This may be because of the rise in service providers offering futures contracts, and investors may be increasingly using futures contracts as a tool for creating long exposure or hedging direct exposure
5. 91% of investors expect to have at least 0.5% of their portfolio in digital assets in five years
- In the US, this portion has grown by eight percentage points relative to last year's survey
What do institutional investors think of virtual goods?
1. Almost 60% of all investors surveyed have a neutral or positive perception of digital assets
- US investors expressing a neutral or positive perception rose from 43% in 2019 to 58% in 2020
- US investors expressing a positive perception of digital assets increased six percentage points from 18% in 2019 to 24% in 2020
- 59% of European investors surveyed have a positive or neutral perception of digital assets
- European investors with a positive perception of digital assets was 35%, higher than 24% of US investors.
2. Why do European investors have a more favorable perception of digital assets relative to their US counterparts? It could be due to factors such as:
- Certain countries in Europe such as Switzerland, Luxembourg, and Malta have developed progressive frameworks for digital assets
- Beginning in January 2020, Germany requires new Bitcoin and digital asset providers to obtain a license from BaFin, the German financial regulatory authority
- In the United Kingdom, the Financial Conduct Authority has been prescriptive on the taxonomy of digital assets, which has been useful in reducing ambiguity in the treatment of different digital assets.
3. What stops investors from investing?
- Investors cited the most common obstacles to digital asset adoption as price volatility, concerns around market manipulation, and lack of fundamentals to gauge appropriate value.
Why do institutional investors invest in virtual assets?
1. Almost 80% of investors surveyed find digital assets appealing
- In the US, the portion of investors who found digital assets appealing grew from 68% in 2019 to 74% in 2020
- In Europe, 82% of investors find digital assets appealing
2. What investors find most appealing about digital assets are their:
- Lack of correlation to other assets: Recessionary fears were top of mind in the back half of 2019, and concerns have picked up in light of pandemic-induced economic shutdowns globally
- Innovative technology play: Virtual assets are often compared to investments in early-stage technology startups. Novel use cases facilitated by virtual goods and underlying technology have captured the attention of investors globally as assets that may disrupt certain industries
- High potential upside: Like early-stage companies, the rapid appreciation in the value of certain digital assets has piqued the interest of many investors
- Free from government intervention: While lower on the list, an interesting takeaway is that 25% of European investors surveyed find that certain virtual entities are free from government intervention appealing, whereas only 10% of investors in the United States feel that way.
3. Want to learn more about what investors are up to in the blockchain and crypto space?
Cryptocurrencies mentioned in this article:
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