As the financial landscape undergoes a digital revolution, institutional investors are increasingly paying attention to digital assets such as cryptocurrencies and central bank digital currencies (CBDCs).
a recent reports by SBI Digital Asset Holdings (SBI DAH) We highlight the growing interest and adoption of these innovative financial products among institutional investors.
The report, based on a survey of more than 50 financial institutions across Asia, shows that the digital asset sector will see significant growth as institutional investors look to diversify their portfolios and take advantage of the benefits of blockchain technology. We have made it clear that we are ready to accomplish this.
Institutional investor demand for digital assets surges
The SBI DAH report highlights a significant surge in institutional demand for digital assets. Almost 60% of institutional investors surveyed reported an increase in their exposure to digital assets in the past 12 months, and the same percentage pointed to increased customer demand for tokenized securities. ing. This trend highlights the growing recognition that digital assets are a legitimate and diverse investment class.
Among institutional investors who are already committed to digital asset investing, 40% have expressed their intention to maintain their investments next year, and a further 25% have plans to significantly increase their investment volume. This commitment to digital assets shows that institutional investors have confidence in the long-term potential of this emerging asset class.
Institutional investors are paying attention to digital assets.Source; SBI Dar
The future of digital assets: CBDC and cryptocurrencies
Looking ahead, survey participants expect further adoption of a variety of digital assets over the next three years. Central bank digital currencies (CBDCs) top the list, with 33% of respondents expecting widespread adoption.
CBDCs provide a digital representation of fiat currency, combining the stability and reliability associated with central bank-issued currencies with the efficiency and programmability of digital assets.
Cryptocurrencies follow closely behind CBDC, with 23.5% of institutional investors expecting further adoption in the coming years. The growing interest in cryptocurrencies can be attributed to several factors, including their potential as a hedge against inflation, their decentralized nature, and their ability to provide diversification benefits to investment portfolios.
As the crypto market matures and gains mainstream acceptance, institutional investors are increasingly recognizing the potential of digital currencies such as Bitcoin and Ethereum.
The development of institutional-grade custody solutions, the emergence of regulated crypto exchanges, and the growing acceptance of cryptocurrencies as payment methods are all contributing to increased confidence among institutional investors.
The digital asset class that attracts the most interest from institutional investors. Source: SBI DAH
Tokenized securities are also attracting significant interest, with 21.6% of respondents predicting growth in the coming years. Tokenized securities, which represent ownership of real-world assets on a blockchain, have several advantages over traditional securities.
These include increased liquidity, faster settlement times, and the ability to split ownership, making it more accessible to a wider range of investors.
Benefits of tokenized securities for institutional investors
The findings highlight the growing interest of institutional investors in tokenized securities. An overwhelming 76% of respondents expressed their intention to invest in tokenized securities due to various attractive benefits.
One of the main advantages cited by institutional investors is the potential for lower issuance costs. Leveraging blockchain technology can streamline the process of issuing and managing securities, reducing the need for intermediaries and associated costs.
Additionally, tokenized securities may have shorter settlement periods. Traditional securities transactions often involve complex and lengthy settlement processes that can take several days to complete.
In contrast, tokenized securities can be settled almost instantly, thanks to the real-time nature of blockchain transactions. This not only reduces settlement risk but also improves liquidity and allows quick access to funds.
Real estate topped the list of real-world assets that respondents most wanted to tokenize. Source: SBI DAH
Another important benefit of tokenized securities is the ability to access new or global capital. Tokenization allows for fragmentation of ownership, allowing investors to purchase smaller pieces of an asset.
This democratization of investment opportunities will enable us to attract a wider range of investors, including those previously excluded due to high minimum investment thresholds. Additionally, the global nature of blockchain networks facilitates cross-border investments, opening new avenues for financing and diversification.
When asked about the specific benefits of tokenizing real-world assets such as real estate, nearly half of participants cited reduced intermediaries as a key benefit.
Tokenization enables direct ownership and transfer of assets without the need for multiple intermediaries such as brokers, custodians, and clearinghouses. This not only reduces costs but also increases the transparency and efficiency of the investment process.
Overcoming institutional barriers to adoption
While the benefits of digital assets are attractive, institutional investors also recognize the existence of barriers to current adoption. The SBI DAH report highlights these challenges and emphasizes the need for collaborative efforts to overcome them.
One of the main barriers identified by survey respondents is the lack of institutional-level infrastructure. Almost a quarter of participants (23.5%) said this was the main barrier to investing in digital assets.
Institutional investors require a robust, secure, and scalable infrastructure that can support the unique requirements of digital asset trading, such as high-speed trading, complex payment processes, and secure custody solutions.
To address this challenge, the industry must focus on developing and implementing institutional-grade solutions across the digital asset value chain. This includes establishing trusted trading platforms, secure custody providers, efficient payment systems, and interoperable blockchain networks.
Key barriers restricting institutional investors from investing in digital assets. Source: SBI DAH
Collaboration between industry players such as financial institutions, technology providers, and regulators is essential to building the necessary infrastructure to support the growth of the digital asset ecosystem.
Regulatory ambiguity was another major barrier highlighted in the survey, with 13.7% of respondents citing it as a major concern. The lack of a clear and consistent regulatory framework for digital assets creates uncertainty for institutional investors who must navigate a complex and evolving legal and regulatory landscape across multiple jurisdictions.
By creating a stable and predictable regulatory environment, authorities can increase institutional investor confidence and foster the responsible growth of digital asset markets.
Lack of a reliable distribution network was also identified as a barrier to adoption, with 11.8% of respondents citing it as a concern. The current fragmented nature of digital asset markets, with numerous exchanges and trading platforms operating across different jurisdictions, can pose challenges in terms of liquidity, price discovery and counterparty risk. .
Broader market adoption boosts institutional investors
Additionally, the study highlights the importance of broader market adoption in driving institutional investment in digital assets. Approximately 15% of participants cited lack of widespread market acceptance as a factor influencing their current investment decisions.
As more institutional investors enter the digital asset space and mainstream adoption increases, network effects can create a virtuous cycle that increases market liquidity, stability, and confidence.
To accelerate broader market adoption, the industry must focus on education and awareness efforts aimed at demystifying digital assets and highlighting their potential benefits. This includes working with institutional investors, regulators and the broader public to advance understanding of the technology, its use cases and its risks.
As the digital asset ecosystem matures, institutional investors will play a pivotal role in shaping the future of financial markets. By embracing digital assets and driving demand for compliant, scalable and secure solutions, institutional investors can unlock new opportunities and contribute to the digital transformation of the global financial landscape.
Featured image credit: Edited from freepic
