Institutional Interest in Crypto Assets Surges in Canada: KPMG Report

Institutional investors in Canada substantially increased their cryptocurrency exposure last year compared to the previous bull market cycle, according to a recent survey by accounting firm KPMG.

The consulting group’s bi-annual survey, “Institutional Adoption of Cryptoassets,” received 65 responses, including 31 institutional investors managing over $500 million in assets and 34 financial services organizations.

Institutional Interest in Crypto Assets Surged in 2023

In its report released on April 24, KPMG revealed that 39% of institutional investors reported having direct or indirect exposure to crypto assets in 2023, marking an increase from 31% in the firm’s 2021 study.

Half of the financial services respondents stated that they offered crypto asset services in 2023, up from 41% in 2021. Additionally, the survey found that one-third of institutional investors had allocated 10% or more of their portfolios to crypto assets, an increase from a fifth reported two years ago.

Kunal Bhasin, a partner and leader at KPMG Canada’s Digital Assets practice, noted that firms seem to be exploring investments in alternative asset classes to serve as hedges against debasement and as reliable stores of value, particularly amidst concerns about increasing inflation and rising debt in the United States.

The survey identified several reasons driving institutional investors’ interest in crypto assets, including a maturing market and improved custody infrastructure. Financial firms cited increased client demand for crypto asset services as a significant factor driving their expansion into this space.

Canada Emerges as Crypto Hub

Last year, many crypto companies relocated a significant portion of their operations to Canada due to heavy regulatory crackdowns in the United States. Notably, Coinbase expanded its presence to the Canadian West Coast, lauding the country’s “regulation by engagement” approach rather than strict enforcement measures.

According to Kareem Sadek, another executive at KPMG’s Digital Assets practice, Canada’s approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in February 2021 played a major role in attracting local investors to the crypto asset class.

However, Sadek highlighted the recent approval of spot Bitcoin ETFs in the United States as a “milestone moment” for many market participants in Canada. He suggested that this development, coupled with the soaring prices of crypto assets, has contributed to the growing attraction of institutional investors to the crypto space.

The report revealed that half of the institutional investors surveyed have exposure to crypto assets through Canadian ETFs, close-ended trusts, or other regulated products. Additionally, 58% have exposure through the stock market, such as Galaxy Digital on the Toronto Stock Exchange, an increase from 36% in 2021.

Moreover, more institutional investors are gaining exposure through derivatives markets, which now stand at 42% compared to 14% in 2021. The only decline observed was in venture capital or hedge fund firms, which fell to 25% from 29% in 2021.