UAE institutional investors plan to increase exposure to cryptocurrencies, survey reveals

Capital appreciation, improving regulation and a larger liquidity pool cited as main reasons for higher allocation, digital assets manager Nickel says

A coin representing Bitcoin cryptocurrency sits reflected on a polished surface and photographed against a backdrop image of hands entering data into a laptop computer in this arranged photograph in London, U.K., on Thursday, Feb. 8, 2018. Cryptocurrencies tracked by have lost more than $500 billion of market value since early January as governments clamped down, credit-card issuers halted purchases and investors grew increasingly concerned that last year’s meteoric rise in digital assets was unjustified. Photographer: Luke MacGregor/Bloomberg /Bloomberg
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Institutional investors and wealth managers in the UAE plan to increase their exposure to cryptocurrency assets between now and 2023, according to a new survey.

Ten institutional investors, or half of those surveyed, said they plan to dramatically increase their exposure to cryptocurrency assets between now and 2023, and a further 10 said they will add the asset class to their portfolio, according to a survey by London-based Nickel Digital Asset Management.

“Despite the recent correction in the crypto market, our survey confirms there is an ever-increasing appetite for this asset class among professional investors, willing to take [a] constructive longer-term view,” Anatoly Crachilov, chief executive and founding partner of Nickel Digital, said.

“We are glad to see increasing adoption of digital assets by many family offices based in [the] UAE, as well as across the Middle East.”

Cryptocurrency aficionados argued during its recent run-up in prices that Bitcoin is being much more widely adopted by institutional investors, with the likes of Fidelity investing in the Grayscale Bitcoin Trust, which has more than $21 billion of assets under management.

The latest Digital Asset Fund Flows report by digital asset investment manager CoinShares reported $2.9 million of net inflows into cryptocurrency funds in the week ending July 19, bringing the total so far this year to $5.7bn. About 73 per cent of this has been invested in Bitcoin. There is now almost $37bn invested in cryptocurrency funds globally, the report says.

There is an ever-increasing appetite for this asset class among professional investors, willing to take [a] constructive longer-term view
Anatoly Crachilov, chief executive and founding partner, Nickel Digital

However, extreme price swings are often cited as a key factor that holds back institutional investors from entering the crypto space.

Bitcoin was trading at $33,904 at 11.05am UAE time on Saturday after a steep fall below the $30,000 mark on Tuesday.

The world’s largest cryptocurrency rose modestly after Business Insider reported on Thursday that US investment bank JPMorgan Chase will allow all of its wealth management clients access to cryptocurrency funds. The bank told its financial advisers in a memo earlier this week to take buy and sell orders from its wealth management clients for five cryptocurrency products, Business Insider reported.

Cryptocurrencies are not licensed by the UAE Central Bank, although a number of cryptocurrency exchanges have been given permission to operate within the Abu Dhabi Global Market. The UAE dirham is the only legal tender in the country that is recognised by the central bank.

Nickel commissioned market research company Pureprofile to conduct online interviews with 20 wealth managers and institutional investors in the UAE between May and June 2021. Those polled collectively oversee $41bn in assets and have some exposure to digital assets.

A majority of UAE-based professional investors surveyed by Nickel cited the long-term capital appreciation prospects of cryptocurrency assets as the main reason for greater allocation to digital assets. Other reasons cited for building exposure to this new asset class include the improving regulatory environment and a larger liquidity pool, according to the survey findings.

An overwhelming majority of investors said the lagging global regulatory clarity was a hurdle to investing in cryptocurrencies. Other challenges include concerns about the security of digital assets, the relative size of the asset market and its liquidity, the survey revealed.

Nickel Digital Asset Management is authorised by the Financial Conduct Authority in London. It uses hedge fund strategies in the cryptocurrency sphere and is run by alumni from Wall Street banks such as Goldman Sachs, JPMorgan, Morgan Stanley and Credit Suisse, the company said.

Updated: September 21, 2021, 7:57 AM