Explore how Canadian institutional investors are ramping up their crypto exposure amidst economic turbulence. Learn from KPMG's insights on the growing interest in alternative assets as hedges against inflation and debt, and discover the impact of regulatory milestones like the approval of spot Bitcoin ETFs in Canada and the United States.
In response to mounting debt and inflationary pressures, institutional investors in Canada are increasingly turning to cryptocurrencies, according to a recent survey conducted by accounting firm KPMG. The survey, which garnered 65 responses from a mix of institutional investors and financial services organizations, sheds light on the growing interest in digital assets within Canada's investment landscape.
Key findings from the survey reveal a significant uptick in crypto exposure among institutional investors compared to previous years. Nearly 40% of respondents reported having direct or indirect exposure to crypto assets in 2023, marking a notable increase from 31% in KPMG's 2021 study. Moreover, a third of institutional investors have allocated 10% or more of their portfolios to crypto assets, reflecting a growing confidence in the asset class.
Kunal Bhasin, a partner at KPMG Canada's Digital Assets practice, attributes this surge in crypto investment to institutional interest in alternative asset classes that serve as a hedge against currency debasement and provide a reliable store of value amidst economic uncertainty. With the backdrop of increasing inflation and rising debt in the United States, institutional investors are seeking refuge in cryptocurrencies as part of their diversified investment strategies.
The maturation of the crypto market and improvements in custody infrastructure are cited as significant factors driving institutional adoption. Additionally, heightened client demand for crypto asset services is prompting financial firms to expand their offerings in this space, further fueling the institutional influx into cryptocurrencies.
Canada's pioneering approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in February 2021 played a pivotal role in attracting local investors to the asset class. Kareem Sadek, another executive at KPMG's Digital Assets practice, highlights the significance of this regulatory milestone and notes the impact of the recent approval of spot Bitcoin ETFs in the United States, which has further cemented cryptocurrencies' legitimacy in the eyes of market participants.
The survey reveals that institutional investors are accessing crypto exposure through various channels, including Canadian ETFs, close-ended trusts, regulated products, and the stock market. Notably, exposure through the stock market has seen a significant uptick, with more investors opting for vehicles like Galaxy Digital on the Toronto Stock Exchange. Moreover, derivatives markets have emerged as another avenue for institutional investors to gain exposure to cryptocurrencies.
While venture capital and hedge fund firms have seen a slight decrease in crypto exposure, the overall trend indicates a growing institutional appetite for digital assets in Canada's investment landscape. As economic uncertainties persist, crypto assets are increasingly being recognized as a viable component of institutional portfolios, offering diversification benefits and potential hedging capabilities against traditional market risks.
(BRAYDEN LINDREA, COINTELEGRAPH, 2024)