According to Coinbase, cryptocurrency adoption by financial institution is growing fast. The crypto fund industry continues to expand as both crypto-native and traditional investment managers launch new strategies to meet investor demand.
There are currently an estimated 825 institutional Bitcoin funds globally, including venture capital funds, hedge funds, crypto ETFs, and crypto private equity funds. Only 5% of recorded funds manage more than $100 million, comprising the majority of assets in this universe.
Between November 2019 to March 2020, Fidelity Digital Assets, conducted a survey to better understand institutional interest and the drivers of cryptocurrency adoption.
Country adopting cryptocurrency are many, but a total of 774 institutional investors participated in the Fidelity survey, 393 of which were in the U.S. while 381 were in Europe. Respondents include, family offices, pensions, crypto and traditional hedge funds, high net worth investors, endowments, and foundations.
Breaking down the numbers, 74% of U.S. institutional investors and 82% of European investors find cryptocurrency appealing. Both U.S. and European institutions find it appealing that certain digital assets are free from government intervention, a major motivator for the adoption of cryptocurrency.
In February 2021 Fidelity Digital Assets started the Wise Origin Bitcoin Index Fund with $13 billion.
JPMorgan Chase, once a critic of Bitcoin, is preparing to offer an actively managed bitcoin fund to certain clients, becoming first largest U.S. mega-bank to embrace crypto as an asset class. The bank also started its own cryptocurrency, the JPM Coin.
The JPMorgan bitcoin fund could roll out as soon as this summer 2021. Two sources familiar with the matter revealed that the institutional Bitcoin shop NYDIG will serve as JPMorgan’s custody provider.
In June 2021, Bank of America, the second-largest bank in the U.S., has approved the trading of Bitcoin futures for some clients. Like most institutions, the bank has been conservative in its approach to the crypto sector, but due to the large amount of margin required to trade the futures, it is now allowing some clients to access the crypto market directly. Some clients are setting up to trade bitcoin futures, which are cash settled, and one or two may have already gone live.
In March 2021, Goldman Sachs confirmed plans to relaunch its cryptocurrency trading desk and in May, the investment bank started buying and selling bitcoin futures in block trades through Chicago Mercantile Exchange (CME) Group, using Cumberland DRW as its trading partner.
Square is building a decentralized finance business using bitcoin. Jack Dorsey creator, co-founder, and Chairman of Twitter and co-founder & CEO of Square spoke about it on stage at the Bitcoin 2021 Convention, a cryptocurrency conference held at the Mana Convention Center in Wynwood on June 04, 2021 in Miami, Florida.
The German Federal Parliament, the Bundestag, cleared the legislation on April 22nd, 2021. Around 4,000 institutional funds with almost 2 trillion euros in assets under management in can now invest 20% of their portfolios in cryptocurrency/bitcoin.
The European Commission’s proposed Regulation on Markets in Crypto Assets (MiCA) is going through its first readings in the Council and the European Parliament. This regulation will form part of the EU’s Digital Finance Strategy and is likely to significantly impact the operation of the crypto market in the EU. It is a complex (and 168-page-long) regulation, whose effects require extensive discussion.
Crypto funds have outperformed bitcoin and most other cryptocurrencies since 2016, according to Crypto Fund Research, which maintains a global crypto fund performance database. The data suggest that crypto funds have historically underperformed cryptocurrencies in bull markets, but often outperform in more bearish markets, most remarkably during the “crypto winter” of early 2018.
The total number of institutional crypto funds has grown by more than 800% in the past five years, driven primarily by the launch of VC and crypto hedge funds in 2017-2018. The pace of cryptocurrency adoption launches began to pick up substantially in the second half of 2020 with the latest bull market likely to encourage more launches in the coming months. While ETFs and other public fund vehicles make up the minority of the current fund universe, this number is expected to increase as regulatory challenges are addressed.
Canada is at the center of fund action. Canada’s securities regulator, Canadian Securities Administrators (CSA), recently approved three bitcoin ETFs. The first is the Purpose Bitcoin ETF (BTCC), which began trading on February 12, 2021. BTCC generated volumes of $165 million on its first day and now has more than $500 million in assets under management.
It’s believed Canada’s approval of bitcoin ETFs will nudge along regulators elsewhere as part of the initiatives to bring crypto into the financial landscape fully. It will impose market surveillance, custody, and auditing requirements on the industry, offering a safer route into the space for retail and institutional investors. One thing is for sure, cryptocurrency adoption and Institutional Bitcoin Funds are expected to grow aggressively in 2021 and beyond.
Riccardo Ferrari
RiccardoFerrari.com
