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Market Share of Cryptocurrency ETFs and Related Derivatives is Growing Among Institutional Investors

The Bank for International Settlements – BIS working papers by Raphael Auer, Marc Farag, Ulf Lewrick, Lovrenc Oražem and Markus Zoss entitled “Banking in the shadow of Bitcoin? The institutional adoption of cryptocurrencies” suggests that the current uneven regulatory treatment across banks and crypto exchanges, and significant data gaps require a proactive, holistic and forward-looking approach to regulating and overseeing #cryptocurrency markets.

Cryptocurrencies have rapidly grown in popularity over the past few years, but institutional investors’ interest in investing in them has only recently risen after hurdles were (reportedly) overcome including meeting the criteria to qualify as investments.

Investment funds have become a gateway for institutional investors to gain exposure to digital currencies since they are more likely to invest via financial intermediaries than to purchase cryptocurrencies directly.

Accordingly, the flows into closed-end cryptocurrency funds declined in 2021, while their net asset value decreased sharply from premium to steep discount (Graph 2, right-hand panel). In response to this reversal, institutional investors have shifted their funds to newly introduced ETFs with lower expense ratios and greater secondary market activity.

Full paper here

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