Technology
Pandemic Raises Cryptos' Charms For Investors, Concerns Linger – Survey

The study suggests changing perceptions of cryptocurrencies among institutional investors and wealth managers, with more regarding the sector favourably.
Almost half of institutional investors and wealth managers polled
recently regard cryptocurrencies more positively since the
coronavirus crisis erupted, according to London-based
digital hedge fund manager Nickel
Digital Asset Management.
Its survey of institutional investors and wealth managers, who
collectively manage around $108.4 billion, showed that 43 per
cent regard cryptocurrencies more favourably, while 35 per
cent said that their views had warmed slightly. A key concern for
investors, above volatility and regulation, is security, with 79
per cent saying asset custody as being the key consideration
over whether to invest in this space. Custodians offer
safekeeping solutions for investors in order to minimise
risk.
The report involved interviews with 50 wealth managers and 50
institutional investors across the US, the UK, Germany, France
and the United Arab Emirates.
When asked to pick their three main reasons for developing a more
positive view of cryptocurrencies since the pandemic started, 58
per cent of professional investors cited strong capital growth,
followed by 53 per cent who said it is because many crypto and
digital assets have shown attractive diversification benefits
when compared with mainstream asset classes.
“Many cryptocurrencies have performed well since the coronavirus
crisis started. From 1st January 2020, the value of bitcoin and
Ethereum has increased by 460 per cent and 1812 per cent
respectively,” Fiona King, head of institutional sales, Nickel
Digital, said. “The crypto and digital markets have also matured
a great deal, providing greater custodial services and liquidity
for example. There is still much more to be done – especially in
regulation – but the market will continue to evolve and grow, and
as this happens long-term perceptions of crypto and digital
assets will improve even further, and professional investors will
increase their allocation to them.”
Some 47 per cent of respondents cited improving custodial services in their three main reasons for having a more positive view of crypto currencies, and 41 per cent said growth in market capitalisation and its positive impact on liquidity were among their top three reasons.
According to the research, 78 per cent of investors now have a positive or constructive view of bitcoin, with only 9 per cent saying their perception of the cryptocurrency is negative. The corresponding figures for Ethereum are 77 per cent and 7 per cent respectively.
While the crypto boom is creating huge wealth for financial
intermediaries, crypto assets remain relatively volatile and
regulators around the world continue to keep a wary eye on it,
although some are more liberal than others. Just this week, the
Monetary Authority of Singapore
announced rules designed to clamp down on retail investors'
use of cryptocurrencies, while the UK government said this week
that it is due to introduce legislation to regulate the
advertising of crypto assets to prevent mis-selling.
Cryptocurrencies, aka digital assets, have become more
"mainstream" in recent years. Several firms such as Goldman
Sachs, BNY Mellon, Julius Baer and Guggenheim Partners, among
others, are coming on board. Last year, SC Ventures, Standard
Chartered’s innovation and ventures unit, partnered with Northern
Trust to launch Zodia, a cryptocurrency custodian for
institutional investors, which was registered with the FCA.
Nickel Digital, which is London-based and regulated by the FCA,
told this publication last year that when managed in a controlled
manner, exposure to bitcoin can add valuable returns to a
portfolio, see
here for that interview.
The firm aims to provide a gateway for traditional
investors into the digital assets market across a broad range of
risk profiles and says risk management is the core of its
approach to investment management. It uses algorithmic
trading, pursuing a range of arbitrage strategies in spot and
derivative markets, as well as directional solutions, aiming to
capture structural expansion of the digital assets
market.
Founded by three people in June 2019, Nickel Digital now has a
team of 20 staff, with senior management coming from Goldman, JP
Morgan, Bankers Trust, Morgan Stanley, Rothchild, Bank of
America, UBS and a few major hedge funds.
It offers four funds in the digital asset space, including its Digital Asset Arbitrage absolute return fund, Diversified Alpha (Digital Factors) non-directional multi-strategy fund, DeFi Liquid Venture fund capturing the broader digital assets space outside bitcoin, and its Digital Gold Institutional fund, a bitcoin tracker. The fund has delivered strong risk-adjusted returns since inception in 2019, with volatility of 3.5 per cent and a Sharpe ratio of 3.4, according to the company.