A survey by the auditing firm Ernst & Young (EY) shows that 31% of hedge fund managers want to include cryptocurrencies in their portfolios. The research, entitled 2021 Global Alternative Fund Survey, was carried out with 264 institutional investors from alternative classes.
In addition to hedge funds, 24% of alternative investors, and 13% of investment managers private equity said they planned to add cryptocurrencies to their portfolios within two years. These managers have funds whose capital varies between $2 billion and $10 billion in assets under management.
However, the big numbers still remain in the intention, as only 7% of managers have actually included cryptoactives in their portfolio. In addition to the direct purchase of cryptocurrencies, exposure via futures contracts is the most used by funds.
Among the funds that do not yet have market exposure, 78% said that cryptoassets do not fit the funds’ strategy. Other managers pointed to volatility, regulatory uncertainty and a lack of understanding of the asset class as reasons not to be exposed.
Alternative classes gain preference
Although the highlight is cryptoassets, the survey does not include these investments in a class of their own. Instead, EY classifies cryptoactives in the “alternative investment” category.
The term is often used in the market, sometimes generically, to designate any investment other than stocks, government bonds or cash. For example, gold, precious metals in general, art and real estate.
Even wine collections, Pokémon figures or non-fungible tokens (NFT) fit this definition. Perhaps for this reason EY includes cryptocurrencies in the list.
For Joe McCarney, global leader of Blockchain at EY, the numbers reflect strong growth in this market. Without citing data, McCarney said less than 7% of funds had exposure to cryptoassets in 2020.
At the same time, the options of companies operating in the sector also proliferated, which made investors more confident. Regulatory fears, for example, are becoming less of a concern as markets approve new investment products.
“A major catalyst for this movement in cryptoassets has been the continuous enhancements of institutional level controls being implemented for custody and brokerage services. These enhancements helped overcome some of the concerns about the security of cryptoassets,” said McCarney.
ETFs attract investors
A second vehicle that attracted institutional capital was the BTC ETFs launched in November. The biggest of these, BITO, reached $1 billion in assets under management with just two days of launch. Currently, the fund moves around US$ 351 million per day.
This volume is 100 times higher than the daily movement of Coinbase shares (COIN). In other words, the institutional demand is clearly aimed at negotiating the cryptocurrencies themselves. Now, the market is eager for the approval of a spot ETF, which trades BTC directly.