Institutional investors lost interest in crypto after 2022 and even with this year's uptrend, their appetite has yet to return, according to Northern Trust's Head of Digital Assets and Capital Markets.
Justin Chapman told CNBC's "Crypto World" at the Digital Assets Week conference in San Francisco that institutions have focused on the underlying blockchain technology of cryptocurrencies, but his company "has capabilities" in place if customer interest in crypto assets rebounds.
“Right after March, the crypto market plummeted…client interest definitely plummeted off the same cliff in terms of institutional interest in cryptocurrencies,” he said.
"It's definitely been quiet now, since 2022, on the institutional side," he continued. "Before that, we were seeing traditional fund managers looking to launch crypto funds, ETPs in Europe, which are the equivalent of ETFs in the US - it's really gone silent. Even hedge funds, which are quite active in the markets, have certainly reduced their exposure in this particular space."
Meanwhile, executives from top financial institutions gathered at the San Francisco conference were energized by blockchain technology, particularly its potential to help tokenize real-world assets like gold for clients.
"The evolution of technology" is moving to a "better place" in terms of market player support, Chapman said.
"As a company, we have capabilities that allow us to administer [crypto trading] functions, but it's a fairly quiet market at the moment and [after] most of the problems we had last year, we haven't seen a rebound on the institutional side yet,” he said.
Specifically, Northern Trust partnered with Standard Chartered in 2020 to launch Zodia, a crypto custodian for institutional investors.
Bitcoin has gained nearly 75% this year after losing 64% in 2022. Trading was yet to start the year as volatility fell to historic lows. Regulatory repression in the United States has been a dark cloud over the industry while the banking crisis has helped push the price of bitcoin higher. Both brought volatility back to the market. Even though bitcoin is currently struggling to break above the $30,000 level, investors agree that it remains in a long-term uptrend.
“We don't focus so much on the asset class because the client isn't right now,” Chapman said. "So we don't see that appetite to have that in their portfolios. If that changes, as a business, we can account for those capabilities. But it's certainly lost its luster from an institutional perspective."