Asset custody concerns overshadow volatility worries for institutional investors and wealth managers eyeing the crypto and digital assets sector, according to research.
In a study conducted by London-based digital assets hedge fund manager Nickel Digital Asset Management encompassing institutional investors and wealth managers from the US, UK, Germany, Switzerland, Singapore, Brazil and the UAE, custody emerged as a primary obstacle. Participants ranked six barriers to investing in digital assets, with custody issues outranking volatility concerns.
Enter the Funds Europe Awards 2024 categories. See more details here
The absence of a central authority ranked as the third most significant barrier, followed by ESG considerations and the risk of market manipulation. Uncertainty regarding the regulatory environment was rated least important, indicating a noteworthy shift in sentiment.
The study also underscored the importance of traditional financial institutions’ backing, with 97% of respondents emphasising its significance before considering investment in any digital asset fund or vehicle. For 44% of participants, this backing was deemed very important.
According to the researchers, despite scepticism, recent market volatility has played a dual role. While some investors remain cautious, nearly one in five (19%) strongly agreed that price fluctuations presented compelling investment opportunities for either initial investment or increasing existing allocations. An additional 76% expressed slight agreement with this sentiment.
Crypto confidence is driving institutional investment, study finds
Anatoly Crachilov, CEO and founding partner at Nickel Digital, said: “The industry has achieved significant progress in mitigating custody and counterparty risks through the adoption of off-exchange settlement solutions (an advanced form of digital asset custody) over the past couple of years. However, this knowledge appears to be limited outside of the ‘digital native’ community.
Close involvement and broad support by large traditional financial institutions is an important factor for many investors, which makes increased involvement of BlackRock and Fidelity a very welcomed move.”
