Discovering Institutional Demand for Digital Assets in the DACH Region
Institutional investors hold the majority of the world’s wealth. Their interest in digital assets is a fundamental driver of trading volume, prices, and innovation. To understand the demand for institutional-grade and blockchain-inspired investment vehicles, we presented a landmark study on over 55 registered professional investors including pension funds, insurance companies, banks, asset managers, and family offices. — Authors: Demelza Hays, Philipp Sandner, Alfred Taudes
In the report, we discuss how much professional investors have already invested, how much they expect to invest over the next year, and what sectors of the industry are attracting the most investment. In juxtaposition to the demand, the report covers the supply of investment vehicles in the crypto asset space by documenting what products exist, what their assets under management are, returns and risks. This helps investors to learn about the products that are currently available and which ones are the most popular. This report can also help business development teams that are considering entering the cryptocurrency space by highlighting the gaps in product offerings. There are several products that are being demanded by institutional investors that are not currently on the market. The report also highlights how current products can improve in order to better suit institutional needs.
The total assets under management managed by the 55 asset allocators that participated in the survey is over €719 billion, which is more than double the entire market capitalization of the digital asset market. Out of those professional investors, 36% already have blockchain-inspired assets in their portfolio either through direct investment in cryptocurrencies, stablecoins, and security tokens or via funds, structured products, or futures.
The respondents in the survey are managing at least €6 billion in blockchain investments or roughly 2% of the entire digital asset market capitalization.
Out of the remaining 64% that have not yet invested, 39.3% plan to invest. This results in 61.1% of professional investors in the survey either already owning digital assets or planning to buy in the future.
Bitcoin and Ethereum are still the most dominant cryptocurrencies. Around 88% and 75% of respondents exposed to cryptocurrencies have invested in these cryptocurrencies, respectively. However, institutional investors appear to be increasingly interested in security tokens. Out of the 39% of investors that plan to invest in the future, security tokens were more popular than Ethereum and other alternative coins.
Smaller asset allocators, such as family offices and boutique wealth management companies, are more likely to invest in digital assets than larger financial service providers, such as banks and pension funds.
There is still unmet demand for financial services and products. Survey results indicate that investors would be willing to pay for insurance for the loss of private keys if such products existed. Additionally, investors mentioned the desire to invest in blockchain-based venture capital funds and derivatives, although few products exist on the market currently.
When comparing structure and strategy, the financial product that has attracted the most capital is a passive, single-asset structured product available for retail as well as professional investors.
Professional investors are primarily interested in Bitcoin. The regulated crypto fund in the DACH region with the highest AuM relies on Bitcoin futures (no self-custody) and also only has exposure to bitcoin. No UCITS funds give the majority of the fund to cryptographic assets, and the UCITS that do have exposure to digital assets do not have direct exposure, but through futures or structured products. There is only one actively managed structured product for retail investors, the rest are for professional investors.
The 1990s Internet boom attracted labor talent and capital from all over the world to California. In a similar fashion, the DACH region is one of the main hubs of blockchain innovation due to regulations built with the entrepreneur in mind, capital from investors, and banking access for crypto companies.
Observations from the countries covered
With approximately 5.5 million potential digital asset retail investors and an average investment amount of €2,546, Germany’s addressable market for retail investment is over €14 billion, making it Europe’s largest market for retail investment products in the digital asset space. Germany is mainly focused on Bitcoin, whereas Switzerland is increasingly interested in Ethereum, and ERC-20 tokens.
Despite Switzerland’s smaller number of potential cryptocurrency investors, the investment amount per adult capita in alternative assets is almost 10x higher in Switzerland (€12,212 per capita) than in Germany (€1,248). This provides evidence that professional and qualified Swiss investors may have more of an appetite for digital assets than their counterparts in Germany. Switzerland is home to several crypto banks, a feat that the US has still not been able to achieve.
Liechtenstein is small but very active. Many of the funds covered in this report are not only banking in Liechtenstein, they are also registered in Liechtenstein. As a member of the European Economic Area, funds registered in Liechtenstein have the unique ability to sell to Swiss clients and to seek the passporting of their prospectus to countries within the European Union.
Unlike Switzerland, Liechtenstein, and Germany, Austria does not have a single bank offering custody of digital assets. There are also no regulated fund products domiciled within the country. However, Austria is home to one of Europe’s fastest growing digital asset exchanges, indicating that there is a home-grown desire to gain exposure to blockchain-related assets.
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