- Institutional investors plan to increase digital asset holdings.
- Two major factors will determine how much they invest, OKX’s new report says.
Mainstream institutional investment firms don’t hold much by way of digital assets. OKX is betting that’s about to change.
“Crypto is still considered a frontier asset class” for those investors, Lennix Lai, global chief commercial officer at the exchange, told DL News.
But, according to a report by the firm, “many more investors are looking to take crypto into their portfolios,” Lai said.
Most crypto trading has been focused around Bitcoin and Ether. But there are more options emerging, such as spot exchange-traded funds, crypto derivatives, and stablecoins.
The report quotes findings that the average allocation to crypto in investment firms’ portfolios is around 1%.
Some investors expect to increase their digital asset allocation to 7% by 2027, according to the report.
However, two factors will determine investors’ appetite for digital assets.
Better custody
One driver of institutional investors’ crypto investments is the new wave of crypto custodians.
“A basic requirement for big hedge funds and family offices to invest in any kind of asset class, including crypto, is segregation of duties,” Lai said.
“Trading needs to be segregated from the assets in custody.”
The problem with digital assets is that they exist on the internet, and are vulnerable to risks like hacks, system failure or loss of private keys, the report said.
That’s driving the emergence of custodians that combine the technical know-how to custody crypto, combined with security standards to suit cautious institutions.
Regulation
A second factor is rules.
Institutions feel more confident about their custodians when they’re subject to regulatory standards, especially on security, the report said. Regulators are expanding these standards to digital assets.
The US Securities and Exchange Commission, for instance, has proposed a tweak to its rules for investment advisors, requiring them to keep crypto at so-called “qualified custodians’ like banks.
Industry heavyweights like Coinbase have protested these rules. However, the report said, qualified custodians “are emerging as trustworthy partners for institutional investors.”
Crypto market movers
- Bitcoin is down 3.8% in the last 24 hours, trading at $60,034
- Ethereum is also down 3.8%, now at $2,528
What we are reading
- CertiK blames rogue employee for Tornado Cash transactions during $3m Tornado Cash hack — DL News
- Maker Rebrands To Sky And Prepares For USDS Stablecoin Launch — Milk Road
- Aave Labs Proposes GHO Stablecoin Integration With BlackRock’s $509M BUIDL Fund — Milk Road
- How Telegram’s founder’s arrest echoes Tornado Cash prosecutions — DL News
Joanna Wright writes about markets for DL News. Reach out at joanna@dlnews.com.
