Institutional investors in Canada have significantly increased their exposure to cryptocurrency over the past year. A recent survey conducted by accounting firm KPMG revealed that 39% of institutional investors reported having direct or indirect exposure to crypto assets in 2023, which is a notable increase from 31% in the firm’s 2021 study. This demonstrates a growing interest and acceptance of digital assets among institutional investors in the Canadian market.
Several factors have been identified as driving institutional investors’ interest in cryptocurrency assets. The maturing market and improved custody infrastructure have made it easier for investors to enter the space. Financial firms also cited increased client demand for crypto asset services as a significant factor driving their expansion into this sector. This indicates a shift in investor preferences towards alternative asset classes that can serve as hedges against debasement and as reliable stores of value, particularly in light of concerns about inflation and rising debt in the United States.
Regulatory Environment in Canada
Last year, many cryptocurrency companies relocated a substantial portion of their operations to Canada due to heavy regulatory crackdowns in the United States. Canada’s “regulation by engagement” approach, as opposed to strict enforcement measures, has been appealing to companies like Coinbase, which expanded its presence to the Canadian West Coast. The approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in February 2021 played a significant role in attracting local investors to the crypto asset class in Canada.
Market Developments
The recent approval of spot Bitcoin ETFs in the United States has been described as a “milestone moment” by industry experts. This development, along with the soaring prices of crypto assets, has contributed to the growing attraction of institutional investors to the crypto space. The report also revealed that a growing number of institutional investors are gaining exposure to crypto assets through Canadian ETFs, close-ended trusts, and other regulated products. Moreover, many investors are now accessing the crypto market through the stock market, with listings such as Galaxy Digital on the Toronto Stock Exchange becoming increasingly popular.
One notable trend highlighted in the survey is the increasing exposure of institutional investors to crypto assets through derivatives markets. This shift indicates a growing sophistication and diversification of investment strategies within the institutional investor community. However, the survey also noted a decline in exposure through venture capital or hedge fund firms, suggesting a repositioning of investment portfolios towards more liquid and easily tradable instruments.
The rise of cryptocurrency adoption among institutional investors in Canada is indicative of a broader trend towards increased acceptance and integration of digital assets into traditional investment portfolios. With regulatory clarity and market maturation, more institutional investors are recognizing the potential of cryptocurrencies as a viable investment option. As the crypto market continues to evolve, it will be interesting to see how institutional investors in Canada adapt their strategies and allocate resources to capitalize on this emerging asset class.
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