Crypto adoption: institutional investors hold back over security concerns
Crypto’s security risks are the biggest cause for concern amongst institutional investors according to a new survey.
Security risks beat market volatility and a lack of regulatory clarity to be crowned as the top reason that institutional investors are put off from investing in crypto. The survey of investors and wealth managers, who collectively manage $108.4bn, showed that 79 per cent see asset custody as the most important consideration when deciding whether to invest in crypto, Bloomberg first reported.
“Its definitely a valid concern,” said Fadi Aboualfa, the head of research for Copper, a crypto custody provider which caters to over 400 institutional clients. “With crypto and blockchain assets there firms have no recourse if there is an error.”
Crypto crime remains a major concern for investors in the crypto space. According to Chainalysis data a record $14bn worth of crypto transaction volume was associated with illicit activities last year, up from $7.8bn in 2020. A total of $3.2bn worth of crypto was stolen in 2021, a year on year increase of 516 per cent.
“For institutional adoption to take place we need to provide traditional financial tools to manage these assets,” Aboualfa added, noting that execution speeds are also a major security concern for institutional investors as on and off chain trades can be delayed during periods of high volatility.
“The irony is that institutions actually have more robust tools at their disposal than retail clients,” he continued, noting that custody providers such as Copper aim to address efficiency and security risks on behalf of institutional clients.
Michael Shaulov, the chief executive of crypto custody provider Fireblocks noted that “while custody and security have been big concerns for large institutions, billions of dollars have already flowed into the space” with the help of custody firms.
Price volatility in the crypto market was also identified as a concern by 67 per cent of survey respondents, 56 per cent cited market cap while 49 per cent who were put off by a lack of clarity in the regulatory environment according to Nickel Digital Asset Management.
A “further 12 per cent included the carbon footprint from Bitcoin and other cryptocurrencies in their top three reasons for not investing”, according to the report, which surveyed 50 wealth managers and 50 institutional investors across the US, UK, Germany, France and the UAE.
The data further revealed that institutional investors are confident the US’ financial watchdog, the SEC, will turn the screws on crypto and be granted additional powers to police digital asset activities.
“If the SEC is granted these extra powers, 73 per cent of institutional investors and wealth managers believe this will have a positive impact on the price of crypto and digital assets and 32 per cent believe it will have a very positive effect,” the report said.
Read more: UK police seize £300m in Bitcoin but is only tiny fraction of crime-linked crypto wallets: ‘Criminals see huge returns from jail’