Majority of Institutions to Increase Crypto Allocations by 2025

Institutional investors are showing a strong bullish sentiment towards cryptocurrency, with a staggering 83% of institutions indicating plans to increase their crypto allocations by 2025. This finding comes from a comprehensive report released on March 18 by Coinbase and EY-Parthenon, which surveyed over 350 institutional investors in January.

Current Crypto Holdings Among Institutions

According to the report, nearly three-quarters of the firms surveyed already hold cryptocurrencies beyond just Bitcoin and Ether. This diversification reflects a significant shift in investment strategies, as institutions recognize the potential of various digital assets. A “significant majority” of these investors are looking to elevate their crypto allocations to 5% or more of their overall portfolios.

Motivations Behind Increased Allocations

The primary motivation driving this trend is the belief that cryptocurrencies offer the best opportunity for generating attractive risk-adjusted returns over the next three years. As traditional markets face volatility, many institutional investors are turning to digital assets as a hedge and a source of growth.

Stablecoins: A Growing Trend

In addition to traditional cryptocurrencies, stablecoins are also gaining traction among institutional investors. The survey revealed that 84% of respondents either currently hold stablecoins or are exploring the possibility of doing so. Institutions are utilizing stablecoins for a variety of purposes beyond merely facilitating crypto transactions. These include:

Generating yield (73%)
Foreign exchange (69%)
Internal cash management (68%)
External payments (63%)

This diverse range of use cases highlights the increasing importance of stablecoins in institutional finance.

Institutional Interest in DeFi

While only 24% of institutional investors currently utilize decentralized finance (DeFi) platforms, this figure is projected to rise dramatically, with expectations that nearly 75% will engage with DeFi within the next two years. The report notes that institutions are drawn to DeFi for several reasons, including:

Derivatives
Staking
Lending
Access to altcoins
Cross-border settlements
Yield farming

These use cases indicate a growing interest in the innovative financial opportunities that DeFi presents.

Market Developments and Future Outlook

On March 17, the Chicago Mercantile Exchange (CME) Group, the largest US derivatives exchange by volume, launched futures contracts tied to SOL, a prominent altcoin. This move signifies the increasing institutional interest in a broader range of cryptocurrencies and derivatives.

As the landscape of cryptocurrency continues to evolve, institutions are likely to adapt their strategies to leverage new opportunities. The increasing allocation towards crypto assets reflects a broader acceptance of digital currencies in mainstream finance.

Conclusion

The findings from the Coinbase and EY-Parthenon report underscore a pivotal moment for institutional investment in cryptocurrency. With 83% of institutions planning to increase their crypto allocations by 2025, the trend towards digital assets is set to accelerate. As institutions explore stablecoins and DeFi, the future of cryptocurrency investment looks promising.

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