Institutional investors in Canada have shown a significant increase in their exposure to cryptocurrency in the past year, according to a recent survey by KPMG. The consulting firm’s bi-annual survey, titled “Institutional Adoption of Cryptoassets,” received responses from 65 participants, which included 31 institutional investors managing assets over $500 million and 34 financial services organizations. The report, released on April 24, revealed that 39% of institutional investors reported having direct or indirect exposure to crypto assets in 2023, a noticeable rise from 31% reported in the firm’s 2021 study.
The survey identified several reasons that are driving institutional investors’ interest in crypto assets. One of the key factors is the maturing market and improved custody infrastructure surrounding cryptocurrencies. Additionally, financial firms cited increased client demand for crypto asset services as a significant driving force behind their expansion into this space. The report also highlighted that institutional investors have been allocating a larger portion of their portfolios to crypto assets, with one-third of them now having allocated 10% or more of their holdings to cryptocurrencies, compared to just a fifth reported two years ago.
Regulatory Environment in Canada
Last year, many crypto companies made the decision to relocate a significant portion of their operations to Canada due to heavy regulatory crackdowns in the United States. The country’s “regulation by engagement” approach was seen as more favorable by industry players, with Coinbase expanding its presence to the Canadian West Coast. Canada’s approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in February 2021 played a significant role in attracting local investors to the crypto asset class. However, the recent approval of spot Bitcoin ETFs in the United States was highlighted as a milestone moment by Kareem Sadek from KPMG’s Digital Assets practice, further increasing the attractiveness of the crypto space to institutional investors.
The survey also revealed the various investment vehicles through which institutional investors are gaining exposure to crypto assets. Half of the respondents reported having exposure through Canadian ETFs, close-ended trusts, or other regulated products. Furthermore, 58% of the investors have exposure through the stock market, such as Galaxy Digital on the Toronto Stock Exchange, showcasing a notable increase from 36% in 2021. The use of derivatives markets has also seen a significant rise, with 42% of institutional investors now gaining exposure through derivatives, compared to just 14% in 2021. The only observed decline was in venture capital or hedge fund firms, which fell to 25% from 29% in 2021.
The growing interest of institutional investors in crypto assets in Canada reflects a broader trend of increased acceptance and adoption of cryptocurrencies in the traditional financial sector. The evolving regulatory landscape, maturing market, and increased investor demand are all contributing to the expanding presence of crypto assets in institutional investment portfolios.
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