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Digital Assets Are in Demand: Why Institutions Should Get Involved Now

November 8, 2022

Digital Assets Are in Demand: Why Institutions Should Get Involved Now

Over 50% of American adults own or have previously owned cryptocurrency. As consumer interest and adoption of the new asset class continues to grow, incumbent financial institutions have taken note and are looking for ways to get involved. 

 In a recent survey of institutional investors, 88% of respondents said that they planned to move ahead with their current digital asset plans despite the market downturn. An impressive 97% believe that tokenization will revolutionize asset management. Finally, if the necessary infrastructure and regulatory framework were in place, then allocations to digital assets would be expected to represent 29% of the average portfolio.

More than 90% of institutional investors that are interested in the space expect to make allocations by 2026 and Aquanow estimates that trading volumes will compound at 25% annually for the next five years. 

The outlook for digital asset adoption is bright. The institutions that take steps now to integrate this emerging functionality into their offerings will have a significant advantage over those that wait. Here’s why.

The Growing Digital Asset Market: Underlying Trends

The interest in this emerging asset class is being driven in large part by generational preferences and socioeconomic conditions. The digitally native Gen Z and Millennial consumers have actively embraced crypto. In fact, nearly 40% of Millennials hold digital asset investments, which is greater than the number who own mutual funds and on par with individual stock ownership. 

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The lingering effects of the Great Recession and global pandemic, which accentuated economic disparity in G-10 countries, have impacted these generations’ world views. As such, Gen Z and Millennial consumers are actively seeking out new ways to earn income, build wealth and effect financial transactions. Digital assets offer a compelling path forward along all those vectors.

The tastes and interests of younger generations tend to shape broader consumption trends as marketers turn their attention to up and coming groups. Gen Z and Millennial consumers are starting to accumulate wealth as they move through their careers and earn higher salaries. Furthermore, estimates show that in the U.S. alone, the Silent Generation and Baby Boomers will transfer more than $70 trillion of their wealth to their adult children. The growing aggregate purchasing power of these generations will accelerate broader digital asset adoption.

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Institutions have taken note of these trends and are actively looking for ways to participate. Those that lean into digital assets early will be able to capture this affluent and educated audience, which will positively impact lifetime customer value metrics.

Four Reasons to Act Now 

There’s tremendous value on the table for institutions that move early to enable this new functionality. Integrating the growing asset class into your business offerings can deliver:

  • Significant return potential and new revenue opportunities given the rapid growth of the nascent industry
  • Near-instantaneous and borderless transactions, superior experiences, and lower friction compared to legacy systems
  • Cost savings, considering institutions spend $20B on trade processing annually; estimates indicate post-trade settlement expenses could be reduced by up to 80% with blockchain
  • Greater ability to succeed in emerging markets and unlock new sources of growth 

Digital assets are already blending with traditional capital markets and will be an important part of the financial tapestry moving forward. Coinbase reports that 75% of institutional allocators expect digital assets to be a mainstream investment in the next five years. Now is the time to put a roadmap in place to enable digital asset use cases and put your firm in a position to succeed.

Want to learn more? We dive deeper into the trends driving digital asset adoption and everything financial institutions need to know about the growing market in our latest report.

Download our Digital Assets Primer for Institutions to learn how to get in on the action.

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