In a recent survey conducted by accounting firm KPMG, it was found that institutional investors in Canada have significantly increased their exposure to cryptocurrencies compared to the previous bull market cycle. This trend indicates a growing interest in alternative asset classes as a hedge against debasement and as reliable stores of value in the face of increasing inflation and rising debt in the United States.
According to the report released by KPMG on April 24, 2023, 39% of institutional investors reported having direct or indirect exposure to crypto assets last year, up from 31% in the firm’s 2021 study. Additionally, one-third of institutional investors had allocated 10% or more of their portfolios to crypto assets, a significant increase from two years ago.
Several factors were identified as driving institutional investors’ interest in crypto assets. These include a maturing market, improved custody infrastructure, and increased client demand for crypto asset services. The survey also revealed that financial firms cited client demand as a significant factor in their expansion into the crypto space.
Regulatory Environment in Canada
Last year, many crypto companies relocated a significant portion of their operations to Canada due to heavy regulatory crackdowns in the United States. Canada’s “regulation by engagement” approach, as opposed to strict enforcement measures, has been attractive to companies like Coinbase, which expanded its presence to the Canadian West Coast. The approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in Canada in February 2021 played a major role in attracting local investors to the crypto asset class.
The recent approval of spot Bitcoin ETFs in the United States was seen as a “milestone moment” by many market participants in Canada. This, combined with the soaring prices of crypto assets, has contributed to the growing attraction of institutional investors to the crypto space.
The survey found that half of the institutional investors surveyed have exposure to crypto assets through Canadian ETFs, close-ended trusts, or other regulated products. Additionally, exposure through the stock market, such as Galaxy Digital on the Toronto Stock Exchange, has increased. More institutional investors are also gaining exposure through derivatives markets, which now stand at 42% compared to 14% in 2021. However, there was a decline observed in venture capital or hedge fund firms, which fell to 25% from 29% in 2021.
The survey conducted by KPMG indicates a growing interest and increasing allocation of crypto assets by institutional investors in Canada. As the regulatory environment in the country remains favorable and market maturity continues to improve, it is likely that this trend will persist in the coming years.