The Rise of Institutional Investors in Canada’s Crypto Market

The Rise of Institutional Investors in Canada’s Crypto Market

Institutional investors in Canada have significantly increased their exposure to cryptocurrency assets, marking a substantial shift compared to the previous bull market cycle. A recent survey conducted by the accounting firm KPMG revealed that 39% of institutional investors reported having direct or indirect exposure to crypto assets in 2023, a notable increase from 31% in 2021. Additionally, the survey found that one-third of institutional investors had allocated 10% or more of their portfolios to crypto assets, indicating a growing interest in alternative asset classes.

The interest in crypto assets among institutional investors in Canada can be attributed to several key factors. The survey identified a maturing market and improved custody infrastructure as significant drivers of institutional interest. Moreover, the increasing demand from clients for crypto asset services has prompted financial services organizations to expand their offerings in this space. The desire to hedge against debasement and store value reliably in the face of rising inflation and debt in the United States has also led firms to explore investments in crypto assets.

The regulatory environment in Canada has played a crucial role in attracting crypto companies and institutional investors to the country. Amid heavy regulatory crackdowns in the United States, many crypto companies have relocated a significant portion of their operations to Canada. Notably, Coinbase expanded its presence to the Canadian West Coast, citing the country’s “regulation by engagement” approach as a more favorable alternative to strict enforcement measures. The approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in February 2021 further solidified Canada’s position as a crypto-friendly jurisdiction.

The recent approval of spot Bitcoin ETFs in the United States has been hailed as a “milestone moment” for the crypto market, particularly in Canada. This development, combined with the soaring prices of crypto assets, has contributed to the growing attraction of institutional investors to the crypto space. As a result, more institutional investors in Canada are gaining exposure to crypto assets through Canadian ETFs, close-ended trusts, and other regulated products. Exposure through the stock market, such as Galaxy Digital on the Toronto Stock Exchange, has also seen a significant increase.

The survey conducted by KPMG highlighted a shift in how institutional investors are gaining exposure to crypto assets. While exposure through Canadian ETFs and regulated products remains prevalent, more investors are now turning to derivatives markets to gain exposure to the crypto space. The percentage of institutional investors gaining exposure through derivatives markets has more than doubled compared to 2021. However, a decline was observed in venture capital or hedge fund firms’ exposure to crypto assets, indicating a shifting landscape in institutional investment strategies.

The rise of institutional investors in Canada’s crypto market signifies a growing recognition of the potential of crypto assets as part of a diversified investment portfolio. The regulatory environment, increased client demand, and the approval of Bitcoin ETFs in the US and Canada have all played significant roles in attracting institutional investors to the crypto space. As the market continues to evolve and mature, it is likely that institutional interest in crypto assets will only continue to grow in the coming years.

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