Institutional investors to regulators: we need clarity on digital assets

At Coinbase, we’re working hard to help update the financial system by building trusted products that expand the utility and adoption of crypto because we believe crypto and blockchain technology have the ability to increase economic freedom and opportunity around the world. Coinbase chose to become a public company in the US because we believe the US would best be served by embracing this fundamental innovation, but we’re also focused on international markets, many of which are moving forward with strategies to become “crypto hubs.” We would like to see the US take a similar approach, but a regulation by enforcement approach in the US is instead leading to a disappointing trend for crypto development in the US. 

At the same time as financial centers around the world are enacting clear rules with the objective of becoming crypto hubs, a new survey shows institutional investors are overwhelmingly dissatisfied with the enforcement-only approach in the US. 

This survey of 151 institutional investors shows that​ they strongly agree that the US does not have clear rules when it comes to digital assets. Yet despite a lack of clarity and the larger market volatility, confidence in the future of crypto remains strong. 90% of investors said that they will maintain (62%) or increase (28%) their current levels of digital asset investment in the coming year. 

This survey also makes clear that the lack of regulatory clarity comes at a price. Nearly 90% of respondents said that regulatory clarity would make them more confident in future investments. At a time when the US has lost significant market share of crypto development, according to an Electric Capital report, that investment could have a meaningful impact on where 1 million high-quality developer jobs are created.

The call from institutional investors is resounding: give us regulatory clarity.

Opportunity for regulators to step up and fill the void

While more than half of respondents consider themselves well-informed with respect to regulators’ actions around how digital assets are treated, institutions seek greater clarity, particularly around classifications and rules pertaining to digital assets as securities, commodities, or neither.

Notably, 78% of institutional investors say they want clearer definitions on digital-asset classifications, while 71% want clarity around digital assets’ tax treatment and 65% want clear regulations around custodial obligations. 

This may be why the majority of institutions responded that regulators have an unfavorable view of the industry. When asked about US regulators’ approach to digital assets, 68% of respondents perceived regulators’ view of the crypto industry as unfavorable, and just 6% perceived their view as favorable.

For more on how we are pushing for greater clarity for the crypto industry, please read our recent blog.

Despite the regulatory environment, institutional allocations to digital assets expected to hold steady

When asked about expected changes in digital asset allocations over the next year, nearly two-thirds (62%) of all institutional investors surveyed stated that they expect their allocation to crypto will remain the same, while 28% expect their allocation to increase.

Among those institutions that already invest in crypto, there is a clear bias toward increasing allocations: 37% of this group plans to increase their allocation while only 12% expects to decrease their allocations.

Clear regulation would provide a path for future adoption

Nearly 90% of institutional investors surveyed said that regulatory clarity would increase their confidence in making future investments in digital assets. The impact that increased regulatory clarity could have on institutional capital should not be overstated. As institutional adoption grows, institutions provide greater liquidity to the crypto ecosystem which enables better price discovery and efficiency.

That would spur more investment and result in business growth in the US, reversing troubling statistics – like those cited in the new report by Electric Capital showing the US’s share of global web3 development has dropped from 40% to 29% in the last six years. This decline, if not arrested, could lead to the loss of up to  1 million tech jobs in the US. As we’ve stated, failure to act could result in the US missing out on one of the most significant technological and economic opportunities of our time. It’s time to update the system. 

Survey methodology

In March, we commissioned Escalent to conduct a survey of 151 decision makers across hedge funds, venture capital, and asset management firms in the US to understand their views on the regulatory landscape and to gauge their confidence with investing in crypto. This survey included institutions who currently invest in crypto and those who are evaluating whether to invest.