Family offices raise crypto bets as Bitcoin ETFs bring legitimacy
The approval of Bitcoin spot exchange-traded funds (ETFs) in January brought significant institutional capital to the digital asset market and enhanced the sector’s reputation, according to a new study by digital-assets infrastructure provider Aspen Digital, in collaboration with the Family Office Association of Hong Kong and advisory firm SBI Digital Markets.
Nine Blocks Capital
"Today, if you're an allocator, you definitely have some element of career risk when allocating to crypto,” Henri Arslanian, co-founder of crypto hedge fund Nine Blocks Capital, told AsianInvestor. “I would argue that this has decreased significantly since the adoption of the Bitcoin ETF.”
The research, which surveyed over 80 family offices, high-net-worth individuals, and asset managers in Asia, indicates that 76% of respondents are currently investing in digital assets, up from the 58% recorded in a similar study conducted by KPMG in 2022.
The impact of Bitcoin ETFs has been substantial, observers say, with Blackrock's iShares Bitcoin Trust ETF (IBIT) reaching $10 billion in assets under management in its initial 49 days on the market.
Institutional recognition has also contributed to a positive market outlook, with 31% of respondents predicting Bitcoin's price to reach at least $100,000 by the end of Q4 2024.
“In my opinion, the bullish outlook for Bitcoin’s price and crypto is based on the improving liquidity outlook, surging institutional demand on spot ETFs, coupled with emerging narratives in crypto,” Matthew Lam, head of research at Aspen Digital, told AsianInvestor.
Historically the crypto industry has also had strong price performance in October and in Q4, he added.
INSTITUTIONAL CUSTODY
Institutional investors have struggled in the past with Bitcoin custody due to security risks, regulatory compliance, and the technical complexity of managing "private keys," or passwords that enable access to crypto assets.
The infrastructure required for secure storage while maintaining trading efficiency was inadequate by institutional standards.
Aspen Digital
“Unlike the traditional private wealth sector, in the crypto space there's a lack of dedicated digital asset management platforms that serve the needs of the private wealth and institutions,” said Lam.
Due to the complexity of the fragmented sector, he added, family offices have typically been interested in wealth managers who can educate them and manage their digital asset holdings.
“Some family offices have started to hire in-house investment managers to invest in the digital asset space,” added Lam.
The approval of spot Bitcoin ETFs largely solved this problem by allowing institutions to gain Bitcoin exposure through a familiar, regulated vehicle without directly handling custody.
The recent study showed that 53% of respondents now gain digital asset exposure through funds or ETFs.
One Hong Kong based family office investor who responded to the survey said that the approval of spot ETFs offers legitimacy to digital assets, and they can gain exposure to crypto without setting up a new wallet or managing private keys.
ROOM FOR GROWTH
Despite the growing interest in digital assets, for the majority of respondents (70%), digital assets make up less than 5% of their total portfolio.
“Most family offices, they view digital assets as one of the alternative investments, and the allocation remains trivial as the majority of portfolios are allocated to traditional financial instruments,” said Lam.
The research found that 90% of respondents cite investment returns as a key factor for investing in digital assets. Meanwhile 71% view them as a diversification tool and 36% see them as a hedge against inflation.
Nine Blocks’s Arslanian believes there is little doubt that institutional players will continue to enter into the crypto space.
“I think a big chunk will happen in the asset management sector, where any large asset manager or hedge fund will need to have a crypto sleeve,” said Arslanian.
“This trend will be catalysed by a few things: regulatory clarity, an institutional-grade ecosystem from custodians to exchanges, and increased liquidity and volumes, with products like the Bitcoin ETF continuing to attract new players to the market," he added.