- Asset managers and professional investors are positioning themselves for significant growth in the crypto sector in the next five years, analytics firm Coalition Greenwich found.
- Of particular interest to large investment firms is the potential for tokenisation of securities and real-world assets.
- The need for more data analysis tools by asset managers could lead to an explosion of data-providing services within the next 12 months.
Despite the crypto winter, a surprising number of asset managers, hedge funds, and investors are anticipating rapid growth in the digital assets sector over the next five years.
That’s according to a research report from Coalition Greenwich, an analytics firm that interviewed 60 portfolio managers, traders, analysts, researchers, and managing directors this May and June. The funds they work at are located in the United States, the United Kingdom, and the European Union.
The report, led by senior analyst David Easthope, found that 48% of the surveyed firms have crypto as part of their AUM, or assets under management.
Almost 80% of respondents expect industry-wide digital AUM to grow on a compound annual growth rate, or CAGR, basis over the next five years, with 41% predicting “very strong” CAGR of more than 11%.
Furthermore, 25% of the firms interviewed already have specific digital asset strategies, with that number expected to rise to 33% within the next two years.
The report also indicated that their crypto units are increasingly being staffed with seasoned professionals, with 24% of the firms now having a senior role dedicated to digital assets.
Some firms are interested in having a variety of digital assets directly under management, including exchange-traded funds, digital asset securities, stablecoins, cryptocurrencies, DeFi tokens, and crypto futures. Others plan support or trading services for these assets.
In anticipation of the sector’s growth, funds are mostly looking to build products that they are already familiar with — such as exchange-traded funds (ETFs). However, out of 23 respondents, 17% were interested in building crypto infrastructure and tokenising securities, and 9% in engaging in DeFi protocols and tokenising so-called “real-world assets”.
Undeterred by the current regulatory environment, participants in the survey are optimistic about the opportunities offered by the US market.
The Securities and Exchange Commission and Commodity Futures Trading Commission are expected to become favourable to the sector, despite several enforcement actions undertaken by the agencies, particularly the SEC, against crypto firms recently.
“Some of the enforcement actions and policy debates take place publicly, but more constructive debates happen behind the scenes among regulated institutions,” the report said.
The “tokenisation of everything”
An area of particular interest for fund managers is the prospect of tokenising financial assets and RWAs. Tokenisation refers to the issuance of blockchain-backed tokens for an asset — such as a cash-like instrument, commodity, security, or even real estate.
BlackRock CEO Larry Fink has said “the next generation of markets is tokenisation of securities.”
His comment was echoed by global asset management firm Bernstein, which said in June that tokenisation was a $5 trillion dollar opportunity.
The benefits of tokenisation include real-time settlements and the transparency inherent to a distributed ledger.
Coalition Greenwich found that 67% of market participants are particularly interested in the efficiency unlocked by the technology.
Investment banks are also interested in digital bonds, the report found. UBS, Deutsche Bank, JPMorgan, Goldman Sachs, HSBC, BNP Paribas, and RBC Capital Markets are among the firms that have piled into projects involving crypto-native bond issuance.
Data arms race
But asset managers lack data analysis tools to support the anticipated growth in the crypto sector, according to the report.
Banks, for example, may need to incorporate on-chain data with their traditional off-chain accounting and administrative functions — especially if they decide to interact with DeFi protocols. But the infrastructure for such blending is in nascent stages.
Similarly, funds are leveraging centralised exchanges, derivatives exchanges, decentralised exchanges, and dealers’ streaming liquidity for market and pricing data.
The aggregation of such data is considered “usually beyond the means of managers, especially traditional ones,” according to the report.
Accordingly, some 85% of the study’s participants said they’re likely to seek outside vendors for market data instead of building their own internal systems.
Coalition Greenwich analysts expect that this could lead to an explosion of data-providing services within the next 12 months.
Tom Carreras is a markets correspondent at DL News. He is based out of Costa Rica. Got a hot tip? Reach out to him at tcarreras@dlnews.com.