Institutional Demand for DeFi Is Increasing While Fading for Bitcoin ETFs; 22% Likely to Invest

But slowing demand in Bitcoin is expected to be temporary as it follows the price after the initial explosion due to pent-up demand.


The DeFi sector, with $40.5 billion in TVL, continues to gain traction not just from retail investors but also institutional investors.

While Grayscale Investments, the world's largest digital asset manager, is looking at several DeFi tokens for potential new product offerings, Bitwise has already launched its DeFi index fund.

Bitwise DeFi Crypto Index Fund has attracted $32.5 million inflows from 262 investors, according to a filing with the U.S. Securities and Exchange Commission. In a “rare” occurrence, the fund became Bitwise’s frets-growing private placement and is showing “no signs of slowing.”

While DeFi is still “very early and still very risky,” from hedge funds, family offices to financial advisers, they are interested in the software-based decentralized applications that are going to disrupt traditional finance. Qiao Wang of DeFi Alliance stated,

“For many institutional investors, it’s easier to make a case for DeFi than for commodity-like crypto assets. Cash flow + growth + reasonable multiples all in one.”

Last month, Swiss-based fintech issuer 21Shares AG launched Polkadot (DOT) ETP, which gathered more than $25 million in 15 days. As of March 3rd, the ADOT AuM has reached nearly $33.8 million.

21Shares AG also surpassed the $1 billion mark in assets under management across its diversified 12 crypto asset ETPs a couple of weeks back, seeing a 200-fold increase in its assets in just over two years. CEO Hany Rashwan commented,

“With such institutional demand wanting to gain exposure to crypto via an ISIN, it took us less than two weeks from announcing $500 million in AuM to now exceeding $1 billion. It is rapidly becoming judicious for many wealth managers, private banks, family offices, and individuals to allocate to crypto-assets.”

“We expect to reach even greater heights in 2021 across both our AuM at 21Shares as well as across the crypto ecosystem.”

A Temporary Slow-Down

Meanwhile, the interest in the first-ever Bitcoin exchange-traded funds (ETF) is taking a backseat after an explosive start.

The Purpose Bitcoin ETF (BTCC), which saw almost $400 million changing hands on its first two days of trading, dropped to $17 million on Tuesday. The fund has still managed to attract over $500 million in assets. Ben Johnson, Morningstar’s global director of ETF research said,

“The initial surge in interest was evidence of some combination of pent-up demand, investors switching from other means of getting Bitcoin exposure, and the fact that Bitcoin’s price was notching new highs as the Purpose ETF began trading.”

“Longer term, I expect volumes will be correlated with Bitcoin’s price.”

The same is the case for Evolve Fund Group’s Bitcoin ETF (EBIT), which had received a subdued response relatively, even after lowering its fees to 0.75% from 1% to attract funds. About $3.2 million shares traded on March 2nd, down from $15 million right after its release.

“The fading demand is temporary and more reflective of the price of Bitcoin versus lack of interest in the ETFs,” said Nate Geraci, president of the ETF Store, an advisory firm.

“With Bitcoin bouncing back, I expect there will be steady demand for these products moving forward — albeit, not the feeding frenzy of the first few days.”

The price of Bitcoin continues to fluctuate between $40k and $50k, following the correction last week after the digital currency hit a new all-time high at $58,300.

22% Institutions “Likely” to Invest in Cryptocurrencies, JPMorgan Survey

The majority of institutional investors, 58% of those surveyed by JPMorgan, said cryptocurrencies are “here to stay.”

The survey of roughly 3,400 that represented 1,500 institutions revealed that 11% of them either trades or invests in crypto. However, an overwhelming majority, 89%, said their firm isn’t involved in digital currencies.

Out of those who answered “no” to their firm investing in crypto, 78% of investors said it is “not likely” that their firm will trade or invest in crypto in the future either while 22% said it is “likely” they would.

Covering the state of institutional investor interest in cryptocurrencies, the survey also asked, “What is your opinion on Crypto?” which revealed that 7% sees it becoming “one of the most important assets” while 14% answered “probably rat position squared (something to avoid).”

While 58% of institutional investors said crypto is “here to stay,” 21% think it is just a “temporary fad.”

Meanwhile, almost all investors (98%) said they believe fraud is “somewhat” or “very much prevalent” in the crypto space.

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