A recent survey conducted by KPMG suggests that institutional investors in Canada have re-embraced digital assets with renewed enthusiasm. The consulting giant’s bi-annual Institutional Adoption of Cryptoassets survey revealed a significant increase in cryptocurrency holdings among Canadian investment firms, reflecting a growing perception of cryptocurrencies as a viable alternative asset class.
Thank you for reading this post, don't forget to subscribe!The survey findings paint a picture of a Canadian investment sector that is increasingly bullish on cryptocurrencies, with 75 percent of respondents reporting holdings in digital assets in 2023, up from just 29 percent two years earlier. This remarkable surge in institutional crypto adoption can be attributed to a confluence of factors, including rising U.S. debt levels, persistent inflation concerns, and a broader recognition of cryptocurrencies as potential hedges against currency debasement and reliable stores of value.
“Rising U.S. debt combined with increasing inflation likely provided a catalyst for the crypto rally of 2023, and it appears investors are looking for alternative asset classes that act as a debasement hedge and a reliable store of value,” explained Kunal Bhasin, partner and co-leader of KPMG in Canada’s Digital Assets practice.
Beyond direct cryptocurrency holdings, the survey also revealed a growing appetite for crypto-related investment products. Approximately two-thirds of respondents, including hedge funds, family offices, pension funds, private equity firms, and venture capital firms, reported exposure to crypto-related public equities, up from just 36 percent in 2021. Additionally, 42 percent of firms indicated exposure to crypto derivatives products, a significant increase from the 14 percent reported in the previous survey.
This institutional embrace of cryptocurrencies can be partly attributed to Canada’s proactive approach to regulation in the digital asset space. As regulatory scrutiny intensified in the United States last year, many crypto companies sought refuge in Canada, lured by the country’s “regulation by engagement” philosophy rather than an enforcement-based approach.
“Canada has played a leading role in creating a regulatory environment that supports innovation in crypto assets,” noted Kareem Sadek, emerging technology risk leader and co-leader of KPMG’s Digital Assets practice. “Those actions, along with rising prices for crypto assets are likely reasons why institutional investors have been increasingly attracted to the crypto space.”
While the institutional adoption of cryptocurrencies in Canada has surged, the survey did highlight one area of decline. Only 14 percent of firms reported offering financial advice for crypto to their clients in 2023, down from 42 percent in 2021. This pullback in wealth management services related to digital assets may be indicative of the lingering uncertainty and volatility that continues to characterize the crypto market.
As the cryptocurrency industry navigates an evolving regulatory landscape and seeks to solidify its position as a legitimate asset class, Canada’s institutional investors appear poised to play a pivotal role. With a supportive regulatory environment and a growing recognition of the potential benefits of digital assets, Canada could emerge as a global hub for institutional crypto investment and innovation.
