Institutions Bet Big on Crypto Despite Volatility

Institutions Bet Big on Crypto Despite Volatility

Despite market ups and downs, major financial players are increasingly positive about cryptocurrency’s future. A recent report surveyed 361 institutional investors, revealing their strong interest in digital assets and plans to increase their crypto investments in the coming year.

Preferred Investment Methods

When asked about their preferred ways to invest in crypto, spot Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) led the way, favored by 66% of institutions. Interest in thematic mutual funds, ETPs, and ETFs also grew, reaching 39% compared to 25% last year. However, enthusiasm for crypto futures ETFs dropped from 33% to 26%, and interest in crypto lending platforms significantly declined from 20% to just 9%.

Price Expectations and Returns

Looking ahead, a striking 74% of institutional investors expect crypto prices to rise over the next 12 months. Furthermore, 58% believe crypto will deliver attractive risk-adjusted returns through 2026, though this is a slight decrease from 2025’s 10% higher figure. This optimism suggests institutions see long-term value despite short-term price swings.

Key Concerns Evolve

While traditional worries like volatility, market manipulation, and illicit activity are becoming less concerning for institutions, new priorities are emerging. Regulatory uncertainty is a major issue, cited by 66% of respondents, up from 52% last year. Custodian security is also a growing concern, doubling to 66% from 33% in 2025. A lack of internal expertise is another rising worry, with 15% pointing to it, an increase from 10% last year.

Regulatory Clarity is Key

Institutions are calling for clearer rules, with 78% identifying market structure as the top area needing regulatory clarity. Licensing for digital asset financial firms followed at 56%. The proposed Genius Act, which focuses on stablecoins, is expected to boost engagement, with 83% believing it will allow more people to use stablecoins. A significant 69% also think it will drive mainstream adoption of stablecoins for business transactions.

Increasing Crypto Exposure

Looking towards 2026, a substantial 73% of institutions plan to increase their crypto exposure, although only 5% intend to make significant increases. Key drivers for this expansion include greater regulatory clarity (65%), the availability of regulated products like ETPs offering exposure to more cryptocurrencies (51%), and improved infrastructure (46%).

Adoption Drivers and Investment Rationale

The primary factors expected to drive crypto adoption in the next 12 months are increased regulatory clarity (75%) and greater institutional adoption itself (69%). The main reason institutions are investing in crypto is its innovative technology, cited by a remarkable 79%, a significant jump from 30% last year. The low correlation of crypto with other assets also remains a key attraction for 51% of investors.

Asset Allocation Shifts

Currently, nearly 70% of institutions allocate 5% or less of their assets under management (AUM) to crypto. This is projected to decrease to 57% by 2026. Meanwhile, the percentage allocating more than 5% is expected to rise from 18% to 29%. Bitcoin (BTC) remains the most held cryptocurrency at 94%, though its share is expected to slightly decrease to 91%. Ether (ETH) is held by 85% and is projected to increase to 90%. Other altcoins are held by 51%, with plans to increase to 56%. Specific altcoins gaining traction include Solana (SOL) at 38%, Chainlink (LINK) at 26%, XRP at 25%, and Binance Coin (BNB) at 15%. Notably, XRP shows the largest planned increase in holdings.

Managing Volatility

Following market volatility in the fourth quarter of last year, nearly 50% of respondents focused more on risk management, liquidity, and position sizing. However, 22% slowed down or kept allocations conservative, while only 4% reported little to no impact on their plans, suggesting a range of reactions to market turbulence.

Custody Models and Priorities

Regarding custody, 56% of institutions use a multi-custodial model. While 24% use a single custodian, 12% plan to switch to a multi-custodian model. When evaluating custody partners, cost is less of a concern, with only 7% citing it as important, down from 49% last year. Instead, regulatory compliance (66%) and security and key signing protocols (66%) have become top priorities, a significant increase from just 25% and 8% respectively last year.

Future Capabilities and Expertise

Over the next two years, institutions are prioritizing trading, custody, and asset tokenization, with about 70% focusing on each. To build expertise, nearly 70% are investing in education, 68% are partnering with crypto-native firms, and 47% are hiring experienced staff or running pilot investments. This shows a clear commitment to developing in-house capabilities.

Stablecoin Adoption and DeFi Interest

Currently, 45% of firms use stablecoins, and 41% intend to do so. The primary use cases are securities settlements (88%) and internal cash management and money movement (85%), with 24/7 trading also being a draw. USD Coin (USDC) leads institutional holdings at 86%, surpassing Tether (USDT) at 68%, likely due to its alignment with the Genius Act. While only 13% of institutions currently engage with Decentralized Finance (DeFi), 43% plan to do so within two years, particularly for lending protocols (70%) and derivatives (60%).

Tokenization of Real-World Assets

Interest in tokenized real-world assets (RWAs) is high, with 63% very interested, up from 57% last year. Faster trading and near-instant settlement are key attractions (66%), while diversification is cited by 49%. Institutions plan to invest in tokenized assets, with 62% aiming to do so by 2027. Tokenized money market funds (50%), corporate bonds (49%), and government bonds (44%) are the most sought-after asset classes.

Challenges and Outlook

Regulatory uncertainty remains the biggest hurdle for institutional crypto investment, cited by 67%, followed by integration challenges (59%). Despite these obstacles, the report highlights three key themes for 2026: progress in rulemaking and regulatory clarity, increased stablecoin adoption for broader use cases, and the scaling of tokenization beyond pilot phases. The overall sentiment from institutional investors is overwhelmingly positive, indicating a strong belief in the long-term transformative potential of blockchain technology.

Source: Institutions Are Quietly Bullish on Crypto (YouTube)