State Street, one of the largest banking institutions in the United States, has released a new report in which they disclose that institutional investors currently allocate over 20% of their total assets under management (AUM) to crypto assets, a figure expected to more than double in the next three years.
Increased Crypto Exposure
The latest edition of the State Street Digital Assets and Emerging Technology Study indicates that the average portfolio allocation to various digital assets stands at 7%. However, this is projected to rise to 16% within three years.
The report highlights that “digital cash” and tokenized versions of listed equities or fixed income are the most prevalent forms of these investments, with respondents reporting an average allocation of 1% in each category.
Interestingly, asset managers show a greater inclination towards crypto assets compared to asset owners. For instance, managers are twice as likely to hold 2-5% of their portfolios in Bitcoin (BTC)—14% of managers versus 7% of owners.
Additionally, 5% of managers have 5% or more of their AUM in Bitcoin, compared to just 4% of owners. Ethereum (ETH) also sees a similar trend, with six times as many managers holding 5% or more in Ethereum compared to their owner counterparts.
The report reveals that asset managers are leading the way in terms of exposure to tokenized assets. They report a significant presence in the tokenization of public assets (6% versus 1% for owners) and private assets (5% versus 2%). 7% of managers have invested in digital cash, compared to only 2% of asset owners.
Last year, the research did not specify percentage holdings but focused on whether respondents intended to increase their digital asset exposure. At that time, one-third of respondents (33%) planned to maintain their current holdings, while half (50%) aimed for increases within the following year.
Looking ahead five years, 69% of respondents anticipated increasing their allocations, with 26% planning “significant” increases. This consistency in intention suggests a steady trend toward greater digital asset allocations.
Institutions Favor Bitcoin Over Other Digital Assets
Despite stablecoins and tokenized real-world assets (RWAs) forming the largest part of these allocations, crypto assets remain pivotal in generating returns.
The report notes that 27% of respondents believe Bitcoin currently delivers the highest returns among their digital asset portfolios, with a quarter expecting it to maintain this status over the next three years. Ethereum follows closely, with 21% stating it is their primary return generator.
Looking forward, the research reveals that most institutions expect crypto assets to become mainstream within the next decade. However, respondents express caution regarding the pace of this growth.
By 2030, 52% anticipate that digital assets or tokenized instruments will make up between 10% and 24% of all investments, while only 1% predict that the majority of investments will be conducted this way.
At the time of writing, the leading crypto, Bitcoin, is trading at $122,670. It is attempting to consolidate above the $120,000 mark, with the aim of establishing it as new support for further potential upward movements and new record highs.
Featured image from DALL-E, chart from TradingView.com
