Japan is expected to lift regulations that prevent limited partners, or institutional investors, from investing in crypto and digital assets.
To gauge the crypto readiness of Japanese financial institutions, Nomura recently surveyed 547 investment managers. The survey found that 54% of Japanese limited partners plan to invest in digital assets within the next three years. The main reason cited was portfolio diversification, but institutional investors also show interest in digital assets due to their low correlation with other asset types and their potential as a hedge against inflation.
“The report doesn’t indicate the assets under management the financial institutions have, but given Nomura’s size and market positioning, the survey results are meaningful,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “It’s a significant shift in sentiment that over half of the institutions plan to invest in digital assets, and that has changed just over the past few years.”
ETF Enthusiasm
U.S. institutional investors made a substantial impact on the crypto market after the launch of 11 bitcoin exchange-traded funds in January. These ETFs are managed by some of the largest financial institutions in the world, including BlackRock, Fidelity, and Grayscale.
Since the launch, many large banks and hedge funds have taken an estimated $3.5 billion stake in bitcoin ETFs, including Wells Fargo, JPMorgan, and Morgan Stanley.
“The U.S. has the strongest stock market and the most value traded outside of maybe foreign exchange markets,” Hugentobler said. “The launch of the ETFs will continue to increase global awareness and drive inflows over time. It will also spur the creation of additional crypto ETFs based on Solana or Doge, where investors can further diversify and gain access to higher beta investment instruments within the digital asset ecosystem.”
Regulatory Risk
The Nomura report found that ETFs are the preferred vehicle for Japanese institutional investors. Around 53% of respondents said they would invest via ETF, while a smaller percentage (31%) indicated they would invest in digital assets directly.
Although Japanese investment managers are increasingly positive about crypto, they raised a few concerns. Chief among them was the regulatory risk involved with crypto investments. There have been investigations of all the major U.S. crypto exchanges lately, and bitcoin ETFs only received approval after a long legal battle with the U.S. Securities and Exchange Commission.
For those reasons, most crypto industry experts believed the SEC wasn’t likely to approve Ethereum ETFs. It was a significant win for the crypto industry when U.S. regulators recently approved the new ETFs—something their Japanese counterparts likely watched closely.
“As more vehicles become available, such as the bitcoin or Ethereum ETFs, awareness will increase and so will the exposure,” Hugentobler said. “It will all, in turn, lead to a higher price floor, which solidifies the space even more and creates a positive demand feedback loop.”
