Despite high volatility in the market, 47.1 per cent of institutional investors have maintained their crypto allocation over the past year and over a third (35.6%) increased their allocation in the same period, according to a survey conducted by Binance Research, the research arm of Binance, a global cryptocurrency exchange.
The cryptocurrency market dropped by nearly $1.4 trillion in 2022 and has been volatile in 2023 following a cascade of bankruptcies and liquidity issues, including the high-profile collapse of crypto exchange FTX.
In March 2023, crypto-focused Silvergate Capital said it would wind down operations and regulators shut down crypto lender Signature Bank.
The Institutional Crypto Outlook Survey, which surveyed 208 Binance VIPs and institutional users from March 31 to May 15, 2023, revealed that an increasing number of institutional crypto investors are on the lookout for the long term. According to survey, 63.5% of users had a positive outlook on digital assets over the next 12 months, while 88% are more positive over the next decade.
A minority (17.3%) decreased their crypto allocation. Unsurprisingly, the main concerns of survey participants are regulatory risk (29.7%), counterparty risk (21.6%), custody of assets (15.7%), and macroeconomic risk (10.6%).
Most (50%) expect to increase their allocation, with only 4.3% expecting to reduce allocation to crypto in the next 12 months.
Key findings of the report:
- 47.1% of respondents retained their cryptocurrency allocation over the previous year.
- 35.6% raised their allocation within the same duration.
- Half of the investors are set to augment their cryptocurrency allocation.
- 4.3% plan to scale it down in the subsequent 12 months.
- 44.7%. of institutional investors leverage crypto for intraday trading strategies
- Market-making and arbitrage rank as the second most prevalent utilization, with 23.1%.
- More than 50% of respondents managed less than $25 million in cryptocurrency.
- 22.6% of the participants had an allocation exceeding $100 million.
Bitcoin remains the most popular choice among institutional investors, with a large proportion of respondents being more positive about bitcoin than the wider crypto sector. Bitcoin is the largest crypto by market cap and the most established.
Bitcoin is seen as the “digital gold” of the crypto world and a store of value and hedge against inflation. While perceptions of Bitcoin and crypto remained largely unchanged in the past year (47.8% and 44.7% respectively), a larger proportion of respondents have turned more positive on Bitcoin as compared to the broader crypto sector (47.3% vs. 33.2%). Similarly, while 22.1% of investors have turned more negative on crypto overall, 4.8% held that sentiment towards Bitcoin specifically.
Preferred sector: Majority 53.9% of investors indicated infrastructure to be the most important sector for them or their fund. This was followed by Layer 1 and Layer 2 technologies (48.1% and 43.8% respectively). When asked about specific areas, just over half (51.0%) said Wallet Innovation (e.g. self-custody, UX/UI improvements) as being important.
Investment Motivation: 42.8% of investors indicated that the potential for large investment returns made the most compelling case for investing in cryptocurrencies. This was followed by 37.5% of investors who believe in gaining long-term exposure to an emerging technology as the primary motivation.
Trading Venues: Centralized Exchanges remain the most popular platform for institutional trading (90.5%) and custody activities (58.2%). Liquidity (28.0%), security (26.0%), and reputation (22.5%) were the top three criteria in determining how they select a trading platform.
Regulatory risk was the most cited concern pertaining to the crypto market (29.7% of responses). This was followed by counterparty and custody risks at 21.6% and 15.7%, respectively. Price volatility seemingly undeterred institutional investors (2.8% of responses).
Social media is a widely relied upon source for information and news. 65.4% of respondents frequently used social media platforms (e.g., Twitter, Telegram, Discord) to receive up-to-date information about crypto. This was followed by 50.0% who used crypto news outlets and 39.9% who sourced information from industry professionals. Mainstream and business news outlets were occasionally used, while a minority rely on friends and/or family for information.