Institutional investors are chasing a $10 billion digital boom

Digital assets are gaining ground among institutional investors, with cryptocurrencies, non-fungible tokens and tokenized securities leading the way, according to a new report from Economist Impact.

The study, commissioned by OKX, highlights the growing convergence between traditional finance and digital native players in the evolving ecosystem.

By 2030, the value of tokenized assets is expected to exceed $10 trillion, up from $400 billion in 2023, the report said. This market opportunity has 69% of institutional investors anticipating increased allocations to digital assets or related products over the next two to three years.

Current digital asset allocations in institutional portfolios range from 1% to 5%, depending on risk appetite, the study notes. Bitcoin and ether, the Ethereum smart contract blockchain token, remain the biggest investment avenues, but institutional investors are showing appetite for other types of crypto assets.

Increase in Crypto ETF Approvals

The approval of 11 spot bitcoin ETFs in the United States led to cumulative institutional investment reaching more than $40 billion by March 2024, according to the report. In addition, spot Ethereum ETFs surpassed $1 billion in trading volume on their debut trading day in July.

IBIT flows at 3 months

Source: etf.com

According to the study, institutional custody solutions are emerging as a driver of mainstream adoption among institutional investors. These solutions address challenges posed by digital assets, such as cybersecurity risks, hacking, and loss of private keys.

Regulatory developments are shaping the digital landscape. The report highlights recent initiatives such as the UAE establishing the first dedicated virtual asset regulator and Hong Kong’s Securities and Futures Commission approving the launch of spot bitcoin and ether ETFs.

Risk management remains a consideration for institutional investors entering the digital asset space. The report suggests adapting traditional financial strategies such as value-at-risk models, scenario analysis and reverse stress testing to account for the characteristics of digital assets.

In May 2024, stablecoins reached a total market capitalization of $169.5 billion, the study notes. These digital assets serve as a bridge between fiat currencies and blockchain technology, combining traditional financial instruments with other features.

The maturing ecosystem of market participants is unlocking institutions’ access to digital assets, the report said. Financial players streamlining various products and services can become partners for institutional investors looking to enter the space.

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