From financemagnates by Damian Chmiel

Institutional investors are demonstrating increased confidence in digital assets, with 57% planning to boost their cryptocurrency allocations despite ongoing market volatility, according to Sygnum's Future Finance 2024 survey released today (Thursday).

Institutional Investors Bullish on Crypto

The survey, which polled over 400 investment professionals across 27 countries, reveals a significant risk appetite among institutional investors, with 63% assessing their risk tolerance as high or very high. More than half of respondents maintain portfolio allocations exceeding 10% in digital assets.

Single token investments remain the preferred strategy at 44%, closely followed by actively managed exposure at 40%. The primary motivation for crypto investment is exposure to the digital asset megatrend (62%), while portfolio diversification (52%) and macro hedging (45%) are also significant drivers.

Martin Burgherr, Sygnum Bank Chief Clients Officer

“Like the previous year, 2024 was one of the new developments and watershed moments for crypto and the broader digital asset ecosystem,” commented Martin Burgherr, Sygnum Bank's Chief Clients Officer. “Among the most important is perhaps the approval and the subsequent launch of the US Bitcoin Spot ETFs, which has the potential to accelerate the institutional adoption of digital assets.”

Finery Markets' report for the first half of 2024 also confirms institutional interest in the cryptocurrency sector. It showed that volumes increased by 95% year over year, driven by ETF approvals.

Furthermore, Nickel Digital's research from last month revealed that 92% of asset managers expect growth in funds focused on digital assets. Additionally, nearly 93% of surveyed financial institutions believe more traditional firms will enter the crypto space within three years.

ETFs Adds Long-Term Credibility

The approval of Bitcoin and Ethereum spot ETFs has significantly boosted market confidence, with 71% of respondents expressing increased trust in the crypto space.

Lucas Schweiger, Digital Asset Research Manager at Sygnum Bank, commented for Finance Magnates that these ETFs provide “a trusted, regulated entry point to Bitcoin and Ethereum” while lending “significant legitimacy to the asset class.”

According to Schweiger, leading TradFi issuers and their involvement also add credibility and long-term commitment to the industry. He forecasts that ETFs will attract a new wave of investors and institutional flows (especially those new to crypto).

Lucas Schweiger, Digital Asset Research Manager at Sygnum Bank

“This will / has led to a spillover effect, with more Bitcoin and Ethereum spot ETF approvals around the world,” Sygnum’s Digital Asset Research Manager added.

Sygnum Bank achieved profitability in the first half of 2024 and amassed $4.5 billion in client assets, underscoring the growing interest of professional investors in the cryptocurrency sector. The bank's client base is approaching 2,000 institutional and professional investors, reflecting its expanding influence in the digital asset market.

Shifting Investment Preferences

Layer-1 protocols dominate investor interest at 76%, while Web3 infrastructure has emerged as the second most attractive sector at 55%. DeFi interest has declined to 33%, potentially due to security concerns and the more than $2.1 billion lost to vulnerabilities in 2024.

In the 2023 survey, real estate was the most popular tokenized asset of interest. This has now been overtaken by equity (44%), corporate bonds (41%), and mutual funds (40%). However, this might change too.

“The upcoming rate cuts (lower treasury yields) and higher DeFi yields (increased crypto market activity) could shift interest from government bonds to higher risk altcoins,” explained Schweiger. “Another interesting new trend is transforming Bitcoin into a yield-bearing asset (through staking), potentially competing with traditional yields in the near future.”

Asset volatility has replaced regulatory uncertainty as the primary barrier to institutional adoption, cited by 43% of respondents. Security and custody concerns remain significant at 39%, while 81% indicated that better information would encourage increased investment.

In late October, Sygnum announced the successful conversion of its Yield Core crypto fund into a Luxembourg Reserved Alternative Investment Fund (RAIF) structure. This transition aims to enhance the fund's appeal to institutional investors by providing a regulated framework. Managing nearly $30 million in assets, the fund focuses on yield-generating strategies within cryptocurrency markets.