Crypto Adoption Among Canadian Institutional Investors Accelerates

KPMG says crypto investing among institutional investors is rising sharply and shows no signs of slowing down.

The adoption of crypto assets among Canadian institutional investors has surged since 2020 with no signs of waning interest, according to a recent survey from KPMG in Canada. [Source]

Crypto assets have become an alternative asset class among institutional investors, the survey says, with many seeking exposure to crypto through regulated investment products such as exchange-traded funds.

“We’ve seen a steady wave of institutional interest in the space—from pension funds and insurers to hedge funds and family offices—with almost one-third telling us they have direct or indirect exposure to the asset class,” Kareem Sadek, partner and crypto assets and blockchain leader at KPMG in Canada, said in a statement. “Institutional investors have told us they are interested in the crypto space because they see it as an innovative technology play with high potential upside.”

KPMG in Canada surveyed 1,009 Canadians, and along with the Canadian Association of Alternative Strategies and Assets surveyed institutional investors and financial services with operations in Canada. Among the institutional investor respondents, 57% reported getting into crypto assets between 2020 and 2021, but most investments were relatively small, with 71% allocating less than 2% of their portfolio to the asset class.

With institutional demand growing, the crypto market infrastructure increasingly resembles the traditional financial ecosystem, KPMG says. It found that the development of institutional decentralized finance is an emerging trend, and is gaining traction with blockchain-based decentralized lending protocols. These protocols, according to KPMG, support anti-money laundering and so-called “know-your-customer” regulations, in addition to letting users lend and borrow crypto assets.

“This maturation of technology and continued innovation has led to steady growth in interest from investors and financial institutions,” says KPMG. “Firms want to stay competitive, and as adoption among fintechs grows, traditional firms are starting to look for opportunities to offer similar services.” [Source]

Survey Highlights Include:

  • 32% of institutional investor respondents have direct or indirect exposure to crypto assets.
  • 50% of institutional investors with crypto exposure do so through exchange-traded funds, close-ended trusts, or other regulated products.
  • 36% of institutional investors with crypto exposure have it through crypto-related public equities.
  • 29% of institutional investors with crypto exposure own crypto assets directly.
  • 29% of institutional investors with crypto exposure invest as a limited partner in a venture capital fund or hedge fund.

“Institutional investors are increasingly adding exposure to crypto assets to further diversify their portfolios given the reduced ability of government bonds to act as portfolio shock absorbers,” Chris Farkas, KPMG in Canada’s national financial services consulting leader for asset management, said in a statement. “While this is a newer and potentially promising space for institutional investors, they’re clearly taking a prudent approach.”

KPMG expects 2022 will see more financial services organizations offering crypto asset services. Nearly 70% of financial services companies told the firm they are considering offering crypto asset services, and approximately 60% said they are going from analyzing opportunities and developing crypto asset strategies to building crypto asset products and services.

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