In the past few years, we’ve seen a dramatic increase in the number of institutional investors turning to digital assets to maximize their returns. From hedge funds and family offices to endowments and pension funds, more and more institutional investors are allocating a portion of their portfolios to digital assets such as cryptocurrencies, blockchain-based projects, and initial coin offerings (ICOs).
So, what’s driving this trend? In a word, returns. Over the past few years, digital assets have outperformed nearly every other asset class, with many cryptocurrencies posting gains of 1,000% or more. For institutional investors who are always looking for new ways to generate alpha, digital assets offer a unique opportunity to do just that.
A New Way to Generate Alpha
For institutional investors, generating alpha—or excess return above the market average—is always the top priority. That’s why they’re always on the lookout for new and innovative ways to do just that. And right now, digital assets are one of the hottest areas for generating alpha.
Recently, the crypto market posted gains of over 3,000%, with many individual coins posting even higher returns. For comparison, the S&P 500—considered by many to be the best gauge of the U.S. stock market—gained just under 20% during that same time period. Furthermore, check Talos.
Clearly, there’s a lot of money to be made in digital assets. But what’s even more appealing to institutional investors is the fact that digital assets are not correlated with traditional asset classes such as stocks and bonds. This lack of correlation means that digital assets can help diversify an investment portfolio and reduce overall risk.
The Rise of Institutional Investors in the Crypto Market
Of course, it’s one thing for institutional investors to allocate a small portion of their portfolios to digital assets; it’s another thing altogether for them to become major players in the market. However, that’s exactly what we’re seeing play out right now.
Hedge funds investing in digital assets raised over $1 billion from investors. And according to a recent survey by Fidelity Investments, 22% of institutional investors already own digital assets, with another 27% planning to do so within the next five years.
-Dramatic increase in the number of institutional investors turning to digital assets.
-Outperform other asset classes.
-Diversify portfolios and reduce overall risk.
Institutional investors are turning to digital assets for one simple reason: returns. With crypto markets posting gains of over 3,000%, it’s no wonder that more and more institutional investors are taking notice of this fledgling asset class.
What’s more, because digital assets are not correlated with traditional asset classes such as stocks and bonds, they offer investors a unique opportunity to diversify their portfolios and reduce overall risk. We expect this trend of institutional investment in digital assets to continue unabated.