Fidelity: 84% of US and European institutional investors are interested in purchasing digital asset investment products

According to new insights from Fidelity Digital Assets' 2021 Institutional Investor Digital Asset Study, the majority of U.S. and European institutional investors (84%) are interested in purchasing institutional investment products that hold digital assets, while in the U.S., investors prefer to access these products through traditional financial firms. Investors surveyed said that fund managers with established cryptocurrency experience were their top consideration when evaluating institutional investment opportunities in the space, followed by fees and performance. While there is strong interest in investment products across all three regions surveyed (Asia, Europe and the U.S.), direct purchases of digital assets are currently the most common investment method among institutional investors worldwide.

Tom Jessop, President of Fidelity Digital AssetsSM, said: “The interest expressed in owning digital assets directly or through various investment products once again demonstrates the maturity of the digital asset market, the diversity of participants and the progress of these investors in how they view the role of digital assets in their portfolios. We have reached an inflection point where many institutions are deepening their commitment to this market and seeking new investment opportunities to express interest in their portfolios. In some cases, there is a desire to include other digital assets in addition to Bitcoin.”

Current investment allocation

Among investors surveyed, digital assets are most often viewed as an alternative asset; however, nearly a quarter view it as a separate asset class. Today, a third of respondents invest directly in digital assets, 28% purchase investment products that hold digital assets, and 16% gain exposure through futures contracts. Nearly a quarter of institutional investors surveyed own Bitcoin, and a fifth own Ethereum.

Initial research results released in July showed that more than half of institutional investors surveyed currently invest in digital assets, with adoption rates increasing year-over-year in the U.S. and Europe. All institutional sectors surveyed reported some level of investment, however, some institutions are significantly more active in this space than others.

In the U.S., aside from crypto hedge funds and venture capital funds, household asset managers and financial advisors surveyed were the most active, with adoption in those two sectors increasing by 28 and 20 percentage points year-over-year, respectively.

In Europe, high net worth investors and financial advisors surveyed are investing most actively, following crypto hedge funds and venture capital funds.

Institutional investment prospects

Seven out of every 10 investors surveyed plan to invest in digital assets in the future. The preference of US institutional investors is expected to continue to shift towards investment products that hold digital assets, while the future preference of European and Asian investors is to purchase them directly.

Overall, institutional investors surveyed expressed a strong preference for actively managed and multi-asset funds, though a third expressed interest in both single and multi-asset products. When looking at potential product structures, 44% of investors surveyed found Bitcoin ETFs the most appealing, followed by actively managed multi-asset funds (41%). More than one-sixth of U.S. and European investors surveyed expressed a neutral or positive view of Bitcoin ETFs.

Peter Jubber, Managing Director of Fidelity Digital Funds, said, “Data continues to show that institutional investors expect the digital asset industry to move closer to other asset classes, whether in terms of multiple product types covering a variety of investment strategies or the ability to gain access to digital asset investments through traditional financial firms. Growing interest across institutional sectors underscores the need for a diverse set of products and solutions to meet the needs of investors on their digital asset journey.”

Investors remain open to tokenized assets

The study also examined investor sentiment towards tokenized assets and the potential for a central bank digital currency (CBDC) backed by the U.S. dollar. Nearly six in ten investors surveyed said they were willing to invest in tokenized real-world assets, with the majority citing real estate (27%), precious metals (19%) and stocks (18%) as having the greatest potential for tokenization. Fractional ownership (low minimum investment), liquidity and price transparency were cited as the main advantages of tokenization. Across the three regions surveyed, crypto hedge funds and venture capital funds, high net worth investors and financial advisors were the most open to investing in tokenized assets.

More than half of the investors surveyed believe that a CBDC backed by the U.S. dollar is likely to be ready within the next five years, with cryptocurrency hedge funds and venture capital funds expressing the strongest belief in the emergence of a digital dollar. While nearly 70% of investors surveyed globally have a neutral to positive view of a CBDC backed by the U.S. dollar, institutional investors in Asia and Europe are more optimistic than their U.S. counterparts.