State Street DigitalSM
Five Takeaways from Our Digital Assets Survey
Our survey reveals that a majority of investors plan to increase their allocation to cryptocurrencies in the next year.
The financial industry continues its rapid transformation to a digital economy, with increasing focus on decentralized finance, cryptocurrencies and tokenization of assets.
In October 2021, we partnered with Oxford Economics to conduct a study of 300 CEOs, heads of corporate strategy, technology and operations executives and investment managers. The findings, equal parts surprising and instructive, point to an overarching theme: While enthusiasm around digital finance is running high, understanding and education remains relatively low (even among financially sophisticated audiences).
We’ve outlined below five key takeaways from the research.
1. Investor enthusiasm outpaces understanding of digital assets
More than half of those surveyed (56 percent) expect cryptocurrencies to be a common feature of modern portfolios in the next three years - and an overwhelming 81 percent will increase their allocation over the next two to five years. But few respondents admit to having detailed knowledge of the technology and concepts that underpin digital assets. Widespread education is needed to counteract rumor, myth and conjecture in the space.
2. An imperative for digital custodians: sharing data in real time
As upstart FinTech firms look to compete with established players, who is best suited to service digital assets? More than half of survey respondents (51 percent) agreed that the most important quality of a digital-asset custodian is the ability to share data in real time, with data exchange closely followed by the ease of onboarding new asset classes/investment products (48 percent) and robust cybersecurity (45 percent) as key attributes. A majority believe blockchain is critical for real time settlement.
3. Tokenization as a transparency and liquidity tool
A majority of survey respondents believe that the tokenization of traditional assets will increase transparency and liquidity (54 percent and 50 percent, respectively). Only a sliver of those surveyed (10 percent), however, say tokenization of traditional assets will be the biggest disruptor in the digital assets space over the next few years. And it is worth noting that while tokenization of traditional assets appears likely, executives feel new digital exchanges will list traditional assets in tokenized forms (52 percent) rather than traditional markets listing digital assets (30 percent).
4. An opportunity for regulatory harmonization
While investor appetite for cryptocurrencies has skyrocketed over the last few years, especially for Bitcoin, US regulation has lagged demand. But enhanced legislation and regulation are coming. In December 2021, SEC Chairman Gary Gensler called for enhanced regulation, calling crypto an asset class “rife with fraud, scams and abuse.” Those surveyed recognized the regulatory environment as among their chief concerns when it comes to potentially investing in cryptocurrency; just behind transparency and cybersecurity.
5. Cybersecurity and risk remain primary concerns
The risk implications of the new digital economy — both positive and negative — is a theme that resonates with institutional investors. Asked about their chief concern when it comes to investing in cryptocurrencies, survey participants chose cybersecurity as their top response (44 percent), with relatively few worried about the environmental implications of digital assets (21 percent) or lack of rigorous tools or research (9 percent).
Correspondingly, nearly half (45 percent) cited “robust cyber-security” as the quality that is most important in choosing a digital asset custodian.
Under the broader “risk” umbrella, more than a third (37 percent) of respondents feel the primary case for having exposure to crypto is as a hedge against inflation risk. And a majority (56 percent) reported “mitigating systemic risk” as the primary benefit of reducing settlement cycles to “transaction plus zero days”; the completion of a stock transaction in the same day it was made — including settlement, payment, and transfer of ownership - a goal that digital finance is poised to achieve.