Institutional investors are increasingly allocating to cryptocurrencies, with 83% planning to raise their investments next year. Key reasons include higher return potential and positive regulatory outlook. Despite optimism, challenges like regulatory uncertainty and market volatility persist.
Institutional investors are increasingly favouring cryptocurrencies, with 83% of 352 surveyed investors indicating plans to raise their digital asset allocations in the coming year. Particularly, 59% intend to allocate over 5% of their assets to cryptocurrencies by 2025. The pro-crypto sentiment linked to the U.S. 2024 election, particularly President Trump’s administration, has significantly influenced this trend.
Before President Trump’s January 23 executive order supporting digital assets, many investors anticipated an uptick in interest from both individual and institutional investors due to political changes. The primary allure of digital assets for investors is the potential for high returns, with 59% citing higher returns compared to other asset classes as a key motivator. Moreover, 68% of respondents believed cryptocurrencies provide superior risk-adjusted returns, outpacing U.S. equities at 40%.
Hedge funds and family offices exhibit strong bullish sentiment, with 25% planning substantial increases in digital asset holdings this year, compared to an average increase of only 12% among other institutional types. Investment diversity is also apparent; 73% of participants reported holdings in altcoins, alongside Bitcoin and Ethereum, signalling growing interest in various digital asset types.
The report outlines four key factors contributing to the bullish outlook on cryptocurrencies: 1) the market’s maturity and resilience, 2) the introduction of Exchange-Traded Products which broaden market engagement, 3) favourable regulatory expectations, especially noted by 57% of respondents, and 4) advancements in underlying blockchain technology.
Despite the positive outlook, investors face significant challenges. A differing regulatory landscape remains a primary concern, identified by 52% as a top issue, followed by market volatility at 47%. Additional challenges include custody security (33%), risks of market manipulation (31%), difficulties in valuation fundamentals (31%), and concerns over illicit financial activities linked to digital assets (25%).
