OKX-Commissioned Economist Impact Research Brief: Institutional Investors View Increased Digital Asset Investment as Inevitable

• Asset allocation, custody, regulation and risk management are core focus areas for institutional investors when considering digital assets, including cryptocurrencies
• Liquidity, market integration and compliance are also highlighted as important dynamics for market entry
• Conclusions based on insights from interviews with business leaders in digital assets and finance, including Citi, Al Mal Capital, Skybridge Capital, VanEck and others

OKX, a leading crypto exchange and Web3 technology company, today announced the release of an OKX-commissioned research brief authored by Economist Impact, entitled “Digital assets as the new alternative for institutional investors: market dynamics, opportunities and challenges,” which highlights institutional investors’ view that digital assets are an inevitable institutional opportunity, and a promising asset class that is set to grow substantially.

According to the brief, there are four crucial focus areas for institutions considering entry into the digital asset market: asset allocation, custody, regulation and risk management. Liquidity, market integration and compliance are also highlighted as important factors for market entry.

The focus areas and insights that emerged in the research brief were gathered from an Economist Impact roundtable discussion in Dubai in the second quarter of 2024 featuring senior business leaders in digital assets and finance, as well as desk research and interviews of representatives of leading financial services and investment firms, including Citi, Al Mal Capital, Skybridge Capital, VanEck and others.

Additional insights* from the research brief include:

There is “growing consensus” among institutional investors that digital assets, such as cryptocurrencies, NFTs and tokenized private funds, have an important place in portfolio asset allocations.

Average allocations typically are currently between 1% to 5% based on risk appetites, and this is expected to increase to 7.2% by 2027

Institutional investors plan to ramp up portfolio allocations to crypto through a number of investment strategies, with approximately 51% of investors considering spot crypto allocations, 33% considering staking of digital assets and 32% considering crypto derivatives

69% of institutional investors anticipated increasing their allocations to digital assets and/or related products in the next two to three years

The “rise of institutional-grade custodians” is ongoing and effective risk mitigation through custody is resulting in “new opportunities” for investors to access the digital asset markets.

The institutional digital asset custody market is experiencing rapid growth, and is projected to have a compound annual growth rate of over 23% through 2028

80% of traditional and crypto hedge funds that invest in digital assets use a third-party digital asset custodian

There is a positive trend of convergence of local and regional regulatory frameworks, such as the MiCA cross-jurisdictional framework in Europe, and this is creating a pathway for adoption globally.

Exchanges have recognized the need to flexibly respond to local regulatory requirements to balance the need to grow with the need to maintain market integrity

Stablecoin regulation is one key area of focus and regulators have created stablecoin regulatory “sandbox” environments in tier-1 markets

Risk management is a crucial step for digital assets to become allocated into institutional portfolios. Exchanges, custodians and custody insurers should prioritize robust infrastructure and security measures.

The adoption of new technologies, such as proof-of-reserves, as well as independent third-party audits can increase digital asset adoption among institutions

Comprehensive risk management strategies utilized in the traditional financial sector, including value-at-risk models, scenario analysis and stress testing, and reverse stress testing should be adapted and used to safeguard institutional investments in cryptocurrency and digital assets

OKX Chief Commercial Officer Lennix Lai said: “This initiative to engage with the world’s leading institutional investors demonstrates how digital assets are rapidly being adopted in investment portfolios. The trend will only intensify if we see advancements in blockchain technology, enhanced regulatory clarity and uptake of innovative digital solutions like tokenized real world assets. Our collaboration with Economist Impact demonstrates OKX’s commitment to fostering a deeper understanding and adoption of digital assets among institutional investors worldwide.”

John Ferguson, Economist Impact’s head of globalisation, trade and finance practice said: “As digital assets gain prominence in financial  markets, regulatory standardisation as well as sophisticated custody and risk management solutions tailored to digital assets are crucial considerations for institutional investors.

This research brief, sponsored by OKX and developed by Economist Impact, aims to equip institutional investors with insights into recent trends, ongoing challenges and emerging opportunities around  digital assets as they navigate this fast-evolving ecosystem.

The findings also highlight the powerful role that technology-driven solutions can play in  embedding trust in digital assets among these investors.”

OKX Institutional is OKX’s comprehensive suite of services tailored for institutional clients.  

These services include advanced trading capabilities, secure custody solutions, and robust risk management tools designed to meet the specific needs of professional investors.

In line with its commitment to enhance its institutional offerings, OKX launched Nitro Spreads – a venue for executing basis, futures spreads and funding rate arbitrage strategies – in July 2023. Nitro Spreads provides institutional traders on-demand access to OKX’s deep liquidity, benefiting both makers and takers while offering opportunities to minimize leg risk across markets.

Visit this page to download the report.

*Insights referenced in this release are cited in the research brief, and are comprised of (1) viewpoints from the Economist Impact roundtable session in Dubai, UAE; (2) interviews with industry experts; (3) desktop research, including industry surveys and studies. Sources for all referenced insights can be found in the research brief