Canadian institutional investors and financial services organizations have seen a significant increase in their involvement with cryptocurrency in 2023, according to a recent survey. The study, conducted by KPMG Canada and the Canadian Association of Alternative Assets and Strategies (CAASA), found that half of the institutional investors surveyed had actively offered crypto asset products or services to their clients. This represents a nine percentage point increase compared to the previous year.
The biannual survey revealed that 39% of institutional investors had direct or indirect exposure to crypto assets, up from just over 30% in 2021. Among the surveyed investors, 50% had exposure through exchange-traded funds (ETFs), closed-end trusts, or other regulated products. Additionally, 58% of investors had exposure to crypto-related public equities, compared to 36% in 2021. However, only 25% of the surveyed investors had invested as a limited partner in a venture capital or hedge fund, down from 29% in 2021.
The survey findings also highlighted the impact of rising inflation on the crypto market in 2023. Kunal Bhasin, partner and co-leader of KPMG in Canada’s Digital Assets practice, stated that the events of 2022, including the collapse of FTX, had a “cleansing effect” on the industry. However, Bhasin noted that the inflationary pressures of 2023 played a crucial role in convincing investors to return to crypto. He explained that rising U.S. debt and increasing inflation provided a catalyst for the crypto rally, as investors sought alternative asset classes that acted as a hedge against debasement and a reliable store of value.
Kareem Sadek, co-leader of KPMG’s Digital Assets Practice, highlighted the importance of regulatory developments in Canada in attracting institutional investors. The approval of the first bitcoin and ethereum ETFs, as well as the introduction of sophisticated strategies involving derivatives and Ethereum staking, were instrumental in courting these investors.
The survey study also found that a significant portion of institutional investors had allocated a substantial portion of their portfolios to crypto assets. One-third of the surveyed investors had allocated 10% or more, compared to only 5% in 2021. Two-thirds of the investors cited a “maturing market and custody infrastructure” as primary reasons for their first-time investment in crypto assets, a notable increase from the 14% who gave the same reasons in 2021.
Overall, the survey suggests that Canadian institutional investors and financial services organizations increasingly view crypto assets as a viable alternative asset class. The combination of regulatory developments, rising inflation, and a maturing market has spurred their involvement in the crypto space.
