The Economist report: Institutional investors continue to increase allocation to digital assets

This report commissioned by OKX shows that an increasing number of institutional investors are researching new digital assets and planning to incorporate them into their portfolios.

• Institutional investors continue to be optimistic about digital assets; in addition to holding cryptocurrencies, they are also embracing tools such as staking and derivatives.
• Despite the ongoing optimism, further adoption still faces challenges.

By 2027, institutional investors expect to increase their allocation to digital assets in their portfolios to 7%. It is anticipated that by 2030, the market size of tokenized assets will exceed $10 trillion, indicating significant growth for the industry. However, the new report commissioned by OKX and written by The Economist points out that challenges remain.

Currently, asset managers allocate 1%-5% of their assets under management (AUM) to digital assets.

The report states: "The allocation of digital assets in institutional portfolios has primarily focused on cryptocurrency trading, with Bitcoin and Ethereum being the main investment categories. Institutional investors are showing greater optimism towards digital assets, thanks to an increasing number of investment tools that are no longer limited to cryptocurrencies."

The report indicates that 51% of institutional investors are considering spot cryptocurrency allocations, 33% are considering staking digital assets, 32% are exploring cryptocurrency derivatives, and 36% are considering tracking cryptocurrency funds.

Now, an increasing number of institutional investors are considering investing in other digital assets beyond holding cryptocurrencies, such as staking, crypto derivatives, and tokenized bonds. Notably, the rise of digital assets in the market is particularly prominent, such as the £50 million ($66 million) digital native bond issued by the European Investment Bank, $1 billion in tokenized U.S. Treasury bonds, and HK$6 billion ($766.8 million) in Hong Kong digital currency bonds.

The report notes that custodians play an important role in helping institutional investors embrace digital assets. 80% of surveyed traditional and crypto hedge funds use custodians. In Asia, many crypto custodians are obtaining the same custodian licenses as their traditional financial counterparts, such as Trust or Company Service Providers (TCSP) in Hong Kong. In Singapore, the Monetary Authority of Singapore has created its own crypto custody framework.

However, there are still challenges, such as a lack of regulatory coordination.

The report states: "The lack of uniformity in regulatory frameworks across different jurisdictions creates uncertainty, making it difficult for institutional investors to meet compliance requirements and manage risks associated with regulatory changes." The report also praises Europe’s MiCA as an effective regional regulatory model.

The authors continue: "The different approaches taken by various regions may lead to market instability and complicate the integration of digital assets into institutional portfolios."

The report also points out that fragmented liquidity is another concern for investors, as it may lead to market instability and make it difficult for institutions to execute trades effectively in the digital asset space.

The report states: "The fragmentation of liquidity across different blockchain networks and digital asset markets may lead to price inefficiencies, posing significant challenges for institutional investors handling large-scale transactions."

Some are attempting to address this issue using technologies such as native token transfers, which are seen as an evolution.

As previously reported by CoinDesk, native token transfers can enable seamless cross-chain movement of tokens while retaining their unique properties and ownership, unlike creating multiple fungible versions of wrapped assets.

OKX's report reaches conclusions similar to a recent survey by Nomura Securities, which found that 54% of Japanese institutional investors plan to invest in cryptocurrencies in the next three years, with 25% of investors holding a positive attitude towards digital assets and inclined to allocate 2%-5% of their asset management scale to these investments.