Institutional investors view the adoption of digital assets as “inevitable” and are poised to increase their allocations in the short to medium term, according to research.
The research, commissioned by crypto exchange and Web3 technology company, OKX, was authored by authored by Economist Impact, a group that collaborates with corporations, foundations, NGOs and governments on sustainability issues.
According to the findings, there are four key focus areas for institutions entering the digital asset market: asset allocation, custody, regulation, and risk management, with liquidity, market integration, and compliance also emphasised.
Currently, institutional allocations for digital assets range from 1% to 5%, but this is expected to rise to 7.2% by 2027. Notably, nearly 70% of institutional investors plan to increase their exposure to digital assets in the next two to three years.
Institutional investors are set to expand their crypto portfolios, with 51% considering direct investments, 33% exploring staking, and 32% looking at crypto derivatives. Moreover, the findings showed that 69% plan to increase their digital asset allocations in the next two to three years.
According to the researchers, the rise of institutional-grade custodians is driving risk mitigation and opening new opportunities in digital asset markets. The custody market is growing rapidly, with a projected annual growth rate of over 23% through 2028, and 80% of traditional and crypto hedge funds now use third-party custodians.
The research also highlighted the “positive trend” of local and regional regulatory frameworks, like the EU’s Markets in Crypto Assets Regulation (MiCA) cross-jurisdictional framework, paving the way for global adoption. Exchanges are adapting to local regulations, particularly in stablecoin regulation, with “sandbox” environments emerging in key markets to balance growth and market integrity.
It’s not rocket science; it’s quantum mechanics
Effective risk management is vital for integrating digital assets into institutional portfolios, shared the researchers. Additionally, prioritising robust infrastructure and security, and adopting technologies like proof-of-reserves and independent audits can enhance confidence. Traditional financial risk strategies, such as value-at-risk models and stress testing, should also be adapted for digital assets.
Lennix Lai, chief commercial officer, OKX, said: “This trend will only intensify if we see advancements in blockchain technology, enhanced regulatory clarity and uptake of innovative digital solutions like tokenised real world assets.”
John Ferguson, Economist Impact’s head of globalisation, trade and finance practice, said: “As digital assets gain prominence in financial markets, regulatory standardisation as well as sophisticated custody and risk management solutions tailored to digital assets are crucial considerations for institutional investors. The findings also highlight the powerful role that technology-driven solutions can play in embedding trust in digital assets among these investors.”
