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Bitcoin (BTC-USD) was seen by asset managers as the cryptocurrency with the most compelling growth prospects, although ethereum (ETH-USD) remained the largest holding in their portfolios, according to a recent CoinShares survey.
Indeed, 43% of respondents felt that bitcoin (BTC-USD), the largest crypto in the world by market capitalization, has the highest upside potential. “This was done primarily at the expense of Ethereum (ETH-USD) which was in the lead in the previous survey conducted in April,” the report said.
CoinShares' quarterly survey drew responses from investors covering $750 billion in assets under management. Note that the survey may not accurately reflect American sentiment, with 70% of respondents coming from Europe and the Middle East, 25% from North America, and around 5% from Asia.
The most popular reason (37% of respondents) for investing in digital assets continued to be the prospect of distributed ledger technology growth, followed by diversification, speculation, good value, and customer demand.
In the eyes of respondents, a key risk remains: regulation and the possibility of a government ban. The nascent crypto space has been the subject of a regulatory crackdown that has raised concerns about growth prospects. However, some argued that regulatory clarity would bode well for crypto as it would weed out so-called bad actors from the space.
Nonetheless, asset managers' weight of digital assets in their portfolios shrunk to 0.7% at the end of June, from 1.8% in April. On top of that, more than $400 million in outflows were recorded in the first half of 2023 as the United States Securities and Exchange Commission stepped up its efforts to scrutinize the emerging industry.
The sentiment began to change, however. Some $470 million returned to the market in the three weeks to July 14, after BlackRock (BLK) filed an application for an exchange-traded fund that would invest directly in bitcoin (BTC-USD), prompting a group of fellow asset managers to rush to be the first to market with a U.S. spot BTC ETF. The ETF run pushed the price of bitcoin up to $31.4,000 from around $25,000 in mid-June. The token stood at $29.8,000 as of Friday afternoon, up 79% year-to-date.
In a separate report, CoinShares said digital asset investment products saw inflows for the week ended July 14, marking the fourth straight week of inflows, as investors cheered a US judge's ruling that Ripple Labs' crypto asset XRP (XRP-USD) can be considered a commodity in certain circumstances.
In addition to regulation, custody and accessibility have both been cited as reasons institutional investors don't want to allocate funds to digital assets, "suggesting that some investors are not comfortable with existing investment methods," CoinShares said.
SA analyst Florian Grummes, using a technical analysis-based approach, believes that the most likely direction for bitcoin (BTC-USD) is higher, following recent excitement surrounding a potential BTC ETF. Still, he warned to remain skeptical given "the macroeconomic outlook as well as typical summer lethargy."