Crypto asset adoption on the rise among Canadian institutions

With both major investors and financial services firms showing interest, crypto services set to increase in 2022, says KPMG

Crypto asset adoption on the rise among Canadian institutions

Following the trend of institutional crypto asset adoption in 2021, financial services companies and the retail investors that work with them are getting ready to wade deeper into the crypto space, according to a trio of KPMG in Canada partners.

"Retail investor interest in crypto assets started with early adopters years ago, and since then we've seen a steady wave of institutional interest in the space – from pension funds and insurers to hedge funds and family offices – with almost one third telling us they have direct or indirect exposure to the asset class," Kareem Sadek, Partner and Crypto Assets and Blockchain leader at KPMG in Canada stated in reference to a survey conducted by KPMG in Canada and the Canadian Association of Alternative Strategies and Assets (CAASA) last fall.

Based on the survey of Canadian institutional investors and financial services companies, crypto assets are directly or indirectly exposed to 32% of institutional investor respondents, while ETFs, closed-ended trusts, and other regulated instruments are known to 50% of the sample population.

Crypto-related public equities are held by 36% of investors; 29% have direct ownership of crypto assets. Another 29% invest in them through venture capital or hedge funds as a limited partner.

Fifty-seven percent of institutional investors said they will participate in crypto assets between 2020 and 2021, although the majority of their investments were modest, with 71% devoting less than 2% of their portfolio to the asset class.

According to Geoff Rush, Partner and National Industry Leader for Financial Services, more financial services businesses will provide crypto asset services in 2022. "Nearly seven in 10 financial services companies told us they are considering offering crypto asset services, and 6 in 10 told us they are going from analyzing opportunities and developing crypto asset strategies to building crypto asset products and services and onboarding clients, so this is a notable change," he added.

Among financial services firms surveyed, 39% said they offer crypto asset services. Within that group, 42% offered wealth management or financial advice in the space; 33% are offering custody, clearing or settlement services; 22% are issuing ETFs or regulated products; and 11% provide liquidity for regulated products as a market maker.

Based on a supplementary poll by KPMG of over 1,000 Canadians, 13% of respondents have purchased cryptocurrency assets such as Bitcoin or Ethereum directly (17% men vs. 8% women), while 11% have purchased Bitcoin ETFs or other cryptocurrency asset funds (14% men vs. 8% women).

Furthermore, 21% of those who haven't yet invested are interested in purchasing crypto assets such as Bitcoin or Ethereum directly (25% men vs 17% women) and 21% were interested in purchasing Bitcoin ETFs or other cryptocurrency funds (25% men vs. 18% women).

Results also show that comparatively, the 18-24 and 25-34 age groups have higher interest rates in purchasing crypto assets (37% and 31%, respectively) than the 55-64 bracket (15%).

"It's interesting but not unexpected to see 18 to 34-year-olds are more inclined to buy crypto assets given the typically higher risk appetites and longer investment horizons of younger investors,” said Rush. “For financial services companies that are looking to build or add to their crypto asset service offerings, this is a key demographic they should pay close attention to."