This is how investors’ perception of cryptocurrencies is changing

By Puja Sharma

Many cryptocurrencies have performed well since the Coronavirus crisis started. From 1^st January 2020, the value of Bitcoin and Ethereum have increased by 460% and 1812% respectively.

A new study of institutional investors and wealth managers, who collectively manage around $108.4 billion in assets, reveals that since the Coronavirus crisis started, 43% say they now have a much more positive view of cryptocurrencies, and 35% say it has improved slightly.

The research, which was commissioned by London-based Nickel Digital Asset Management, Europe’s largest regulated and award-winning digital assets-hedge fund manager founded by senior traders and investment professionals formerly from major financial institutions, including Goldman Sachs and JPMorgan, reveals 78% now have a positive or constructive view of Bitcoin, with only 9% saying their perception of the cryptocurrency is negative. The corresponding figures for Ethereum are 77% and 7% respectively.

When asked to pick their three main reasons for developing a more positive view of cryptocurrencies since the crisis started, 58% of professional investors cited strong capital growth, and this was followed by 53% who said it is because many crypto and digital assets have shown attractive diversification benefits when compared to mainstream asset classes. Some 47% of respondents included improving custodial services in their three main reasons for having a more positive view of cryptocurrencies, and 41% cited growth in market capitalization and its positive impact on liquidity, among their top three reasons.

Many cryptocurrencies have performed well since the Coronavirus crisis started. From 1^st January 2020, the value of Bitcoin and Ethereum have increased by 460% and 1812% respectively.

“The crypto and digital markets have also matured a great deal, providing greater custodial services and liquidity for example. There is still much more to be done – especially in the area of regulation – but the market will continue to evolve and grow, and as this happens long-term perceptions of crypto and digital assets will improve even further, and professional investors will increase their allocation to them,” Fiona King, Head of Institutional Sales at Nickel Digital, said.

Nickel currently has four funds investing in the digital asset space. Its market-neutral Digital Asset Arbitrage Fund pursues an absolute return strategy without expressing directional views on the underlying crypto-assets market. It exploits market inefficiencies and price dislocations and harnesses swings of volatility to deliver consistent positive returns within a strictly defined risk management framework. The fund delivered over 96% of positive months since inception over two years ago, with the volatility of 3.5% and Sharpe of 3.4.

The rapid rise in cryptocurrencies has attracted not only individual investors but also celebrities in the financial industry who are looking at some of the booming sectors. After the launch of Bitcoin in January 2009, the early days of the crypto industry were driven primarily by tech enthusiasts and amateur investors. Institutional investors have dismissed Bitcoin as a worthless digital asset primarily favoured by criminals, and hackers. But now that the crypto industry has a market capitalization of over $2t, financial institutions find it difficult to abandon business opportunities.

The change in approach was driven by several factors, including the incredible success of Bitcoin and other cryptocurrencies. Some financial institutions are redirecting their funds to cryptocurrencies to diversify their investments, and this year alone, billions of dollars worth of financial institution capital has been poured into this area.