While 2021 was the year of institutional adoption of crypto assets, 2022 is shaping up to be the year of widespread crypto adoption by financial services companies and their retail investors, say a trio of KPMG in Canada partners.
Crypto assets have emerged as an investible alternative asset class among institutional investors, with many gaining exposure through regulated investment products such as exchange-traded funds. Financial services companies are also integrating crypto asset-related services alongside their existing business lines by issuing ETFs, offering wealth management advice, custody, fund administration, compliance, clearing and market making.
"Retail investor interest in crypto assets started with early adopters years ago, and since then we've seen a steady wave of institutional interest in the space – from pension funds and insurers to hedge funds and family offices – with almost one third telling us they have direct or indirect exposure to the asset class," Kareem Sadek, Partner and Crypto Assets and Blockchain leader at KPMG in Canada says, referencing a survey conducted by KPMG in Canada and the Canadian Association of Alternative Strategies and Assets (CAASA) last fall.
"While institutional investors have told us they are interested in the crypto space because they see it as an innovative technology play with high potential upside, financial services companies are also interested in crypto assets, but they're a bit more cautious because of the lack of regulatory clarity in Canada. Still, even with that regulatory uncertainty, nearly four in 10 financial services companies we've heard from are offering crypto asset services, so we think this will be a pivotal year for crypto adoption among financial institutions."
Highlights - Survey of Canadian Institutional Investors and Financial Services companies:
- 32 per cent of institutional investor respondents have direct or indirect exposure to crypto assets
- 50 per cent have exposure through exchange-traded funds, close-ended trusts or other regulated products
- 36 per cent have exposure to crypto-related public equities
- 29 per cent own crypto assets directly
- 29 per cent invest as a limited partner in a venture capital or hedge fund
- 39 per cent of financial services respondents offer crypto asset services
- 42 per cent offer wealth management or financial advice in the space
- 33 per cent are offering custody, clearing or settlement services
- 22 per cent are issuing ETFs or regulated products
- 11 per cent provide liquidity for regulated products as a market maker
Of institutional investor respondents, 57 per cent reported getting into crypto assets between 2020 and 2021, but most investments were relatively small, with 71 per cent allocating less than two per cent of their portfolio to the asset class.
"Institutional investors are increasingly adding exposure to crypto assets to further diversify their portfolios given the reduced ability of government bonds to act as portfolio shock absorbers," says Chris Farkas, Partner, National Financial Services Consulting Leader for Asset Management, KPMG in Canada. "While this is a newer and potentially promising space for institutional investors, they're clearly taking a prudent approach."
2022 will see more financial services organizations offering crypto asset services, says Geoff Rush, Partner and National Industry Leader for Financial Services. "Nearly seven in 10 financial services companies told us they are considering offering crypto asset services, and 6 in 10 told us they are going from analyzing opportunities and developing crypto asset strategies to building crypto asset products and services and onboarding clients, so this is a notable change," he added.
Retail investors interested in crypto
A supplementary poll by KPMG in Canada shows a growing interest among retail investors in crypto assets, but most are waiting to see what institutional investors plan to do in the space before adding them to their portfolios.
The KPMG poll of over 1,000 Canadians found 13 per cent of respondents have bought Bitcoin or Ethereum directly, while 11 per cent have purchased Bitcoin exchange-traded funds or other crypto asset funds. One in five who hadn't yet invested said they are interested in making direct and/or indirect investments.
Nearly one quarter (23 per cent) said their comfort investing in the space will grow as more institutional investors adopt crypto assets and more than half (54 per cent) say they plan to let institutional investors "test the waters" first before they make the plunge.
Canadians under the age of 35 and males of all ages were more likely to have invested in crypto assets and are interested in gaining exposure to the asset class.
Poll highlights – survey of Canadians:
- 13 per cent of respondents have bought crypto assets like Bitcoin or Ethereum directly (17 per cent men vs. 8 per cent women)
- 11 per cent have bought Bitcoin ETFs or other crypto asset funds (14 per cent men vs. 8 per cent women)
|Age||Respondents who bought crypto assets like Bitcoin or Ethereum directly||Respondents who bought Bitcoin ETFs or other crypto asset funds|
|18-24||24 per cent||20 per cent|
|25-34||23 per cent||15 per cent|
|35-44||19 per cent||14 per cent|
|45-54||10 per cent||12 per cent|
|55-64||5 per cent||6 per cent|
- 21 per cent of respondents who hadn't invested yet are interested in buying crypto assets like Bitcoin or Ethereum directly (25 per cent men vs 17 per cent women)
- 21 per cent were interested in buying Bitcoin ETFs or other crypto funds (25 per cent men vs. 18 per cent women)
|Age||Interested in buying crypto assets like Bitcoin or Ethereum directly||Interested in buying Bitcoin ETFs or other crypto asset funds|
|18-24||31 per cent||37 per cent|
|25-34||33 per cent||31 per cent|
|35-44||22 per cent||24 per cent|
|45-54||21 per cent||21 per cent|
|55-64||10 per cent||15 per cent|
"It's interesting but not unexpected to see 18 to 34-year-olds are more inclined to buy crypto assets given the typically higher risk appetites and longer investment horizons of younger investors. For financial services companies that are looking to build or add to their crypto asset service offerings, this is a key demographic they should pay close attention to," says Geoff Rush.
For more on the institutional adoption of crypto assets in Canada, check out The rise of cryptoasset adoption in Canada.
KPMG in Canada surveyed 1,009 Canadians between February 14-16, 2022 on Schlesinger Group's Asking Canadians panel via the Methodify online research platform.
KPMG and the Canadian Association of Alternative Strategies and Assets (CAASA) also surveyed institutional investors and financial services with operations in Canada. The survey was administered to CAASA members and KPMG clients and received 75 responses between August 30 to October 31, 2021.
About KPMG in Canada
KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation. Guided by our core values of Integrity, Excellence, Courage, Together, For Better, KPMG employs more than 10,000 people in over 40 locations across Canada, serving private- and public-sector clients. KPMG is consistently ranked one of Canada's top employers and one of the best places to work in the country.
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