New research from European digital asset hedge fund manager Nickel Digital Asset Management reveals institutional investors and wealth managers have dramatically increased their allocation to cryptocurrencies and digital assets over the past 12 months.
The survey of professional investors from the US, UK, Germany, France, and the UAE, who collectively have around $108.4 billion in assets under management, reveals 94 per cent increased their allocation to crypto and digital assets over the past 12 months, with one in four more than doubling it. Most (94 per cent) plan to invest more in crypto and digital assets over the next year, with 29 per cent expecting to at least double their allocation.
Nickel Digital said most professional investors have tiny levels of exposure to crypto and digital assets as they are testing the market in terms of how it works, its infrastructure and liquidity.
When asked where the institutional investors and wealth managers had sourced their funds from to increase their allocation to crypto and digital assets over the past year, 20 per cent said at least half had come from their holdings in real estate. This is followed by 17 per cent who said 50 per cent or more had been taken from selling other crypto and digital asset investments, and the same percentage said this about selling commodity holdings.
This is followed by 15 per cent who said half of their new crypto/digital investments had come from selling private equity holdings. However, only 12 per cent of investors said this level of investment had been made by selling equity holdings, and the corresponding figure for fixed income investments was 13 per cent.
“With rising inflation and continued volatility in mainstream markets, we expect professional investors to continue to search for ways to diversify their portfolios and they will increasingly see digital assets s part of the portfolio allocation,” Nickel Digital founding partner and CEO Anatoly Crachilov said. “Digital assets have performed well during the Coronavirus crisis, and the industry continues to make solid improvements on many of the challenges it faced in the past, such as providing secure custodial services and robust trading infrastructure, all with a greater regulatory clarity. These factors have contributed to an increasing number of institutional investors viewing digital assets as part of mainstream allocation.”
Nickel Digital 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 returned 15 per cent in 2021, with 90-plus per cent positive months since inception in 2019, with volatility of 3.4 per cent and Sharpe of 3.1.
Diversified Alpha Fund is a non-directional multi-strategy fund that wraps a portfolio of attractive but hard-to-access and capacity-constrained strategies into a single, investible fund. Among the strategies it deploys are high-frequency market-making, statistical arbitrage, relative value, and volatility arbitrage. The fund protected capital well in May, delivering a record monthly performance of 4.7 per cent despite the underlying market going through one of the strongest corrections in recent years. It returned 17 per cent in 2021 with volatility of 6.9 per cent and Sharpe of 2.7.
DeFi Liquid Venture Fund is designed to capture the growth potential of the broader digital assets space outside Bitcoin, spotting early winners in Layer 1 protocols and decentralized finance, the area of greatest financial innovation. The fund is an actively managed research-driven vehicle aiming at identifying early winners and capturing structural expansion of this space. It returned 28 per cent since inception in mid-March 2021.
Nickel’s Digital Gold Institutional Fund, a Bitcoin tracker, provides access to physically allocated Bitcoin. It delivers institutional-grade precision of trade execution available seven days a week. it returned 67 per cent in 2021, in line with the underlying Bitcoin market.