Quality of custodial services is seen as the most ‘significant’ hurdle to institutional investors investing in cryptocurrencies
A new survey of institutional investors and wealth managers from the US, UK, France, Germany, and the UAE who collectively have USD275 billion in assets under management, reveals that 76 per cent describe the concerns about security of digital assets and custodial services as a ‘significant’ hurdle preventing many from investing in cryptoassets for the first time.
The same percentage said this about the size of the market and liquidity, followed by 71 per cent who see the regulatory environment for the crypto market as a major issue.
The survey was commissioned by Nickel Digital Asset Management (Nickel), Europe’s leading regulated and award-winning investment manager dedicated to the digital assets market.
Anatoly Crachilov, co-Founder and CEO of Nickel Digital, says: “Whilst many forward-looking institutional investors are increasing their exposure to digital assets, our findings show that concerns around security and custody of these assets remain a top concern for many other allocators. In reality, the industry has achieved a very strong progress on that front, deploying a range of sophisticated cryptographic solutions, including distributed keys and MPC (multi-party computation) vaults, to create robust custody models. In addition to crypto-native custodians, we are now seeing Fidelity, BNY Mellon, and State Street entering the market, thus further reenforcing market infrastructure. All of this increases the confidence levels in the sector and lead to ever-growing allocations to this fast developing asset class.”
Henry Howell, Nickel’s Head of Business Development, adds: “Security of clients' assets is paramount at Nickel. We deploy independent institutional-grade custody solutions, in partnership with US-based Fidelity and UK-based Copper. These sophisticated solutions are based on air-gapped, multi-signature, cross-organisation custody models, thus mitigating single points of failure, typically associated with self-custody of crypto assets. In our setup, the join control over assets is retained by independent Fund Administrator and Fund Custodian at all times.”
Nickel currently has four funds investing in the digital asset space. Its market-neutral Digital Asset Arbitrage Fund pursues an absolute return strategy without expressing directional views on the underlying cryptoassets market. It exploits market inefficiencies and price dislocations, and harnesses swings of volatility to deliver consistent positive returns within a strictly defined risk management framework. The fund delivered over 95 per cent of positive months since inception two years ago, with volatility of 3.5 per cent and Sharpe of over 4.
Diversified Alpha (Digital Factors) Fund is a non-directional multi-strategy fund which wraps a portfolio of attractive but hard-to-access and capacity-constrained strategies into a single, investible fund. Among the strategies it deploys are high-frequency market making, statistical arbitrage, relative value, volatility arbitrage, and trend following. The fund protected capital well in May, delivering a record monthly performance of +4.7 per cent despite the underlying market going through one of the strongest corrections in recent years.
DeFi Liquid Venture Fund is designed to capture the growth potential of the broader digital assets space outside bitcoin, spotting early winners in Layer 1 protocols and Decentralised Finance, the area of greatest financial innovation. The fund is an actively managed research-driven vehicle aiming at identifying early winners and capturing structural expansion of this space.
Nickel’s Digital Gold Institutional Fund, a bitcoin tracker, provides secure, efficient, transparent, and liquid access to physically allocated bitcoin. It delivers institutional-grade precision of trade execution available 7 days a week with one of the industry’s lowest expense ratios.
Defensive Bitcoin Fund, to be launched in September, aims to offer institutional-grade exposure to bitcoin while managing downside volatility of such portfolio. Nickel will apply an overlay of derivative instruments to reduce downside volatility while aiming to capture the majority of the upside.