Institutional investors will embrace digital assets like Bitcoin by 2026, Fidelity finds

More than six in 10 institutional investors around the globe expect to buy digital assets directly or invest in companies focused on them by 2026, according to a new study.

Fidelity Digital Assets’ 2021 Institutional Investor Digital Assets Study evinces growing investor perception of some cryptocurrencies, such as Bitcoin, and blockchain firms — decentralized computer networks that are digital ledgers — as an asset class that should be part of a portfolio.

The study polled 1,100 investors, including 408 in the U.S., 393 in Europe and 299 in Asia. They included high net worth investors, family offices, digital and traditional hedge funds, institutional investors (which include banks and insurers), financial advisors, endowments and foundations.

By the numbers:

• Seven in 10 institutional investors expect to buy directly or invest in digital assets sometime in the future.
• More than 90% of institutional investors that are interested in digital assets expect to see an allocation within their institution’s or clients’ portfolios within the next five years.
• As a result, 63% of institutional investors expect to see digital assets in their own or clients’ portfolios by 2026, according to a Fidelity spokesperson.

Why it matters: 

• The trend may help bring cryptocurrencies like Bitcoin and other digital assets to retail consumers. A 2021 study by Gemini found that 14% of U.S. adults now own cryptocurrency, around 21 million people.
• Slightly more than half (52%) of the institutions that Fidelity surveyed across Asia, Europe and the U.S. now invest in digital assets.
• One in three (33%) of US institutions surveyed now holds assets in the digital assets class, up from 27% a year ago.
• The U.S. lags Asia (71%) and Europe (56%) in getting on board.
• “The expectation that the vast majority of institutions will have some exposure to digital assets by 2026 shows that investors have a deeper understanding of the asset class and have progressed in the three-phase journey from education to adoption,” says Tom Jessop, the president of Fidelity Digital Assets, in the report.

What it means for financial advisors:

• Most advisors ignore cryptocurrencies. But like it or not, digital assets occupy increasing mindshare at brokerages, banks and other investment platforms.
• Recent JP Morgan research quoted by The New York Times found that the market value of cryptocurrencies is bigger than the total outstanding amount of subprime real estate debt — an estimated $1.1 trillion — before the 2007–2009 financial crisis.
• “The increased interest and adoption we’re seeing is a reflection of the growing sophistication and institutionalization of the digital assets ecosystem,” says Jessop in the report.

Bloomberg News

What happens next:

• The SEC, citing concerns about investor protections, hasn’t decided where it stands on greenlighting the first cryptocurrency ETF.
• With the IRS ramping up its scrutiny of cryptocurrency investors and providers, more clients may fall within the crosshairs. The IRS treats digital currencies like a stock for tax purposes.
• Global officials are intensifying their efforts to regulate burgeoning cryptocurrency markets to prevent fraud and extortion.

Note: Fidelity defines “digital assets” as any investable asset that’s issued and transmitted electronically. Its survey covers Bitcoin, other cryptocurrencies and non-fungible tokens (such as the Nyan Cat digital artwork that recently sold for $580,000). But it also includes responses regarding investment portfolios with exposure to blockchain firms, a Fidelity spokesperson says.

The study doesn’t capture investors’ exposure through shares of companies, including Tesla, that hold Bitcoin on their balance sheets, the spokesperson says.