Institutional investors are becoming increasingly interested in crypto assets. This is the result of a survey by the management consultancy zeb.
The still young asset class of digital assets is becoming increasingly popular among investors. Well put one survey of management consulting “Zeb” and the law firm lindenpartners growing interest also among institutional investors. The management consultancy asked representatives from the financial sector about the current mood regarding crypto assets and other digital assets. Altogether, three essential insights could be gained.
Most of the respondents have not yet made any investments in digital assets. However, the interest is there. Almost two thirds of the participants said that they are basically open to entering the world of crypto currencies, security tokens and crypto securities. All respondents rated the fact that this entry could take place within the next two years as “likely” (44 percent) or “very likely” (56 percent).
Wolfgang Schlaffer from zeb expects another wave of institutional investment to roll off as early as next year. The co-author of the survey predicts BTC-ECHO:
We perceive that the topic of digital assets is being worked on more intensively on the investor side, for example through internal consultation, employee qualification and even “MVP investments”. (…) In terms of time, we think that there will be a further increase in 2022 if the corresponding supply is available. What could make market penetration even more difficult is the lack of knowledge and, as a result, the lack of confidence in digital assets on the part of investors.
Wolfgang Schlaffer opposite BTC-ECHO
The survey concludes that the expansion of the market infrastructure would have led to this increased adoption. In addition, the creation of a regulatory framework has created security for institutional investors. In this context, the survey refers, for example, to the German government’s law on the introduction of electronic securities (“eWpG”) that came into force in June. Among other things, the law enables electronic bonds to be issued and expands the existing central register to include a crypto securities register that applies to blockchain-based financial products.
“Institutionals prefer direct investments or fund vehicles”
In general, the authors state that there are no real preferences among institutional investors with regard to asset classes within digital assets. A clear trend towards direct investments, fund vehicles such as special alternative investment funds (AIF) or ETFs can be seen, however. The result thus reflects the behavior in the analog investment sector, according to which individual institutions held over 80 percent of the assets through direct investments.
In this area, too, the regulatory framework conditions are decisive. Because while there are indeed the first rules of the game for special AIFs, it still looks unclear when it comes to ETFs. Because the current UCITS guidelines do not yet allow ETFs for crypto assets. In view of the demand, zeb considers approval to be possible in the near future. With regard to a Bitcoin ETF in Europe, much should also depend on the decision of the Securities and Exchange Commission (SEC) depend. The US Securities and Exchange Commission is currently examining several applications from various investment companies.
Compliance and security concerns with crypto assets
Although two thirds could fundamentally imagine investing in crypto assets, the remaining proportion cited compliance and security concerns as the main argument against becoming involved. While a lack of a regulatory framework is once again given as a reason, the zeb also sees the lack of trust of supervisory authorities with regard to money laundering and terrorist financing as a reason for skepticism among institutional investors. The short history of the asset class also adds to the uncertainty.
The Federal Ministry of Finance recently tried to alleviate tax uncertainties with regard to crypto values with a new draft. The feedback from the crypto community was tough. Eric Romba, lawyer at lindenpartners and co-author of the zeb survey, says:
There are certainly uncertainties when it comes to tax issues. The recently published draft of the BMF on the tax treatment of crypto values is important and correct, at the same time it must be discussed whether new technologies such as staking can and should be taxed like “classic funds”.
Eric Romba opposite BTC-ECHO
In conclusion, the authors of the survey put forward four theses that could arise in the near future. The investment interest of institutional investors will primarily continue to increase. However, this also results in an increase in services and product offerings by professional investors. Acting quickly could mean a competitive advantage. Furthermore, special AIFs offer investment opportunities in familiar structures, which means that they should play a greater role in future investments by institutional investors. Last but not least, the authors appeal to market participants to deal intensively with the new asset class. An early positioning could also lead to a competitive advantage here.