Thank you to everyone who participated in our crypto currency survey. If you have ever run such an exercise yourself, you know it can be difficult to log a sufficient number of responses to create a statistically valid sample. We like to see +200 completed surveys when it comes to complex topics like crypto currencies, for example.
Happily, the responses rolled in soon after we opened the questionnaire. That tells us that the institutional investment community is deeply interested in the topic and wants to express their point of view. Even better: we had a wide range of responses on issues like where bitcoin may end the year, showing that we reached both crypto bulls and bears.
Lastly, a special thanks to Scott Daspin at Triad Securities, who both helped craft some of the more technical questions and also sent the survey to his contact list of institutional investors.
To start, here is our executive summary of the survey responses:
- It isn’t the lack of a US listed ETF solution holding back institutional investors from owning bitcoin and other crypto currencies. Rather, it is the absence of a regulated custody solution for storing such assets. This issue came up in several questions and was always the top concern expressed.
- More than half of respondents (62%) believe a crypto currency will eventually become a global reserve currency asset. It may not be bitcoin, however.
- Just over half (52%) of respondents believe crowd psychology currently sets the price of crypto currencies, not any quantifiable fundamental metric. For the balance, global usage/penetration (15%) and other unspecified quantifiable measures of value (also 15%) were top responses.
- Further growth in the popularity of cryptos as investment vehicles leaves open the possibility of new players in the financial services industry, with only 26% of respondents expressing the view that existing investment banks/exchanges will eventually dominate the crypto currency landscape.
- Almost half (45%) of respondents believe bitcoin’s price will end the year either about where it is today or higher. Less than a third (30%) believe it will end the year below $5,000.
Here are the details of the survey responses and our commentary:
Information on the respondents:
- 216 in total
- 42% were from the traditional money management industry (both institutional money managers and RIAs/family offices)
- 24% were from brokerage firms and other service providers
- 35% noted their employer as “Other” and were a mix of other financial industry (insurance companies, for example) professionals, crypto currency industry participants, and private individuals
- 48% had purchased bitcoin/other crypto currency and/or participated in an Initial Coin Offering/Security Token Offering
Question: In your opinion, what might cause crypto currencies to stabilize in the second half of 2018 (choose 1 or 2)?
- 52%: US regulatory approval of an institutional-grade custody solution
- 27%: Greater merchant adoption of bitcoin/other cryptos
- 19%: More aggressive regulatory actions against fraudulent crypto offerings
- 17%: Growing global macroeconomic concerns that cause investor concerns regarding traditional assets
- 21%: I don’t see any probable event that would stabilize prices
Our take: The importance of institutional-quality custody solutions is the most important theme of this survey, and it makes a strong early appearance here. Professional money managers may want the option to invest in the crypto space, but without secure and regulated custody akin to what they have in other assets it is difficult/impossible for them to proceed.
Question: What do you think is the most appropriate valuation approach when considering the price of bitcoin or other large crypto currencies (choose 1)?
- 52%: Valuation is purely a function of crowd psychology
- 15%: Global per capita penetration/usage
- 15%: Other quantifiable measure of comparable value
- 9%: Compared to the value of gold or other precious metals
- 8%: Compared to physical large denomination cash bills outstanding
Our take: To our thinking, this was the single most surprising response of the whole survey. Finance professionals make their livings by analyzing asset values through the lens of fundamental/quantifiable factors. That more than half of respondents believe valuation in the crypto space is “purely a function of crowd psychology” is refreshing in its honesty.
Question: What are the biggest issues preventing crypto currencies from becoming mainstream investment products (choose 1 or 2)?
- 45%: Regulated custody solutions
- 32%: Greater issuer transparency
- 27%: Regulated exchanges
- 24%: Institutional levels of daily liquidity
- 13%: A US listed exchange traded fund
- 11%: Don’t know/No opinion
Our take: The importance of regulated custody solutions makes another appearance here, and respondents rated it over 3x more important than a US listed ETF solution. Greater issuer transparency wasn’t far behind, and potential institutional crypto investors also want to see regulated exchanges and more real liquidity.
Question: Thinking now just about custody, how important is it to you that such solutions be regulated by a government or other established entity (choose 1):
- 53%: Very
- 34%: Somewhat
- 13%: Not at all
Our take: In case you’ve missed the theme here, one more bite at the apple… Crypto market participants want to see custody solutions that mirror more traditional assets in terms of government/established agency regulation. Over half rate it as “very important”.
Question: Do you think that traditional participants (exchanges like the NYSE/NASDAQ and bulge bracket firms like Goldman and Morgan Stanley) will eventually dominate crypto asset markets (choose 1):
- 36%: Maybe
- 27%: No
- 26%: Yes
- 11%: Don’t know/No opinion
Our take: Most of our respondents see a real opening for new entrants in financial services as a result of crypto currencies. Only 26% think the old-line players will come to own this space in the same way they dominate equity/fixed income/currency trading.
Question: Will a crypto currency ever become a global reserve asset (choose 1):
- 38%: No
- 33%: Yes, but not necessarily bitcoin
- 18%: Yes, a “Fed coin” or other central bank-sponsored virtual currency
- 11%: Yes, bitcoin
Our take: Another outcome we would not have predicted: 62% of respondents believe a crypto currency will one day take its place with the dollar and euro as a global reserve asset.
Question: A crypto currency will be an everyday payment option similar to credit/debit cards or cash…. (choose 1):
- 34%: Within 2 and 5 years
- 28%: Within 5 to 10 years
- 16%: In greater than 10 years
- 12%: In the next 2 years
- 10%: Never
Our take: We struggle with how to interpret this one. On the one hand, 2-5 years isn’t that long for crypto currencies in terms of mainstream payment adoption, and 34% of respondents felt that was a realistic timeframe. On the other hand, the second most popular choice was 5-10 years, which feels quite distant. And only 12% thought less than 2 years was likely. We suspect a custody solution will come along in less time, meaning crypto currencies will become financial assets before they are transaction enablers.
Question: The REBEL tokens (Ripple, Ethereum, Bitcoin(s), EOS, Litecoin) account for over 75% of the value of all crypto currencies. How will this develop in the next 3-5 years (choose 1):
- 43%: Other tokens will break into the top 5, displacing one or more of the “REBELs”
- 33%: The relative dominance of these tokens will decline, but they will remain the largest part of the crypto universe
- 12%: It doesn’t really matter – I don’t see a future for crypto currencies
- 12%: Don’t know/No opinion
Our take: Our friend Scott and Greg Landegger coined the term “REBEL” tokens, a nod to “FANG” stocks and “BRIC” markets. Respondents were split as to how long their dominance will last. A full third felt their competitive position in the crypto world was fairly permanent, while 43% thought other currencies might elbow their way into the top 5.
Question: Where do you see bitcoin ending the year?
- 27%: Between $7,000 and $10,000
- 26%: Between $1,000 and $5,000
- 25%: Right around current levels ($5,000 to $7,000)
- 18%: Over $10,000
- 3%: Below $1,000
Our take: When we ran this survey, bitcoin was bouncing around $6,000 to $7,000; it has since strengthened to just over $8,000 on hopes for an SEC approved ETF. Our respondents in general thought bitcoin would end the year around these levels or higher (45% of answers). Less than a third (29%) believe is will end 2018 below $5,000.
Reader note: not all percentages add to 100 due to both rounding and some questions that allowed for 2 answers.