Survey reveals a sharp rise in crypto services and investments as market stability improves
In 2023, Canadian institutional investors and financial services organizations demonstrated a renewed interest in cryptoassets, motivated by a market rally, clearer regulations, and innovations in digital assets.
A bi-annual survey conducted by KPMG in Canada and the Canadian Association of Alternative Assets and Strategies (CAASA) highlights this shift, revealing significant growth in the offerings and adoption of cryptoasset products and services since 2021.
Increased Offerings and Adoption
The survey results indicate a notable increase in the integration of cryptoassets within the financial sector. Half of the financial services respondents confirmed that their organizations now actively offer at least one type of cryptoasset product or service to clients, an increase from 41 per cent in 2021.
Among institutional investors, 39 per cent reported having direct or indirect exposure to cryptoassets, a rise from 31 per cent in the previous survey.
Market and Regulatory Developments
Kunal Bhasin, partner and co-leader of KPMG in Canada's Digital Assets practice, commented on the evolution observed in the market.
“The last time we did this survey in 2021, it was a strong year for cryptoassets. The following year was a turbulent year, marked by fraud and collapses of major cryptoasset trading firms, but those events had a cleansing effect on the industry,” he said.
Bhasin also noted that the economic conditions, including rising US debt and inflation, likely spurred the crypto rally in 2023, with investors increasingly viewing cryptoassets as a viable alternative asset class.
Kareem Sadek, Emerging Technology Risk leader and co-leader of KPMG's Digital Assets practice, further explained Canada's role in fostering a conducive regulatory environment for cryptoassets.
“Canada has played a leading role in creating a regulatory environment that supports innovation in cryptoassets, from approving the first Bitcoin and Ethereum exchange-traded funds to allowing sophisticated strategies involving derivatives and Ethereum staking,” Sadek added.
Service Expansion and Client Demand
Financial services organizations have expanded their range of cryptoasset services, influenced strongly by client demand.
The survey indicates that 80 per cent of financial services respondents cited client demand as a major factor in their expansion of cryptoasset services, a significant increase from 50 per cent in 2021.
The most commonly offered services now include cryptoasset trading; custody, clearing, and settlement services; and quantitative trading.
Challenges and Future Prospects
Despite the growing acceptance, challenges remain, particularly regarding the unique risks associated with cryptoassets, such as anti-money laundering and financial crimes. Sadek pointed out the need for Canada's large financial institutions to address these challenges as they expand their cryptoasset services.
Looking forward, the sector is poised for further growth. “A pivotal moment for cryptoassets came in January 2024, when the US Securities and Exchange Commission (SEC) approved spot Bitcoin ETFs,” said Sadek.
He anticipates that an Ethereum ETF will also be approved in 2024, which could attract more traditional asset managers to the industry.
The survey underscores a dynamic shift in the Canadian financial landscape, with cryptoassets gaining traction as an investible and regulated asset class.
As the market matures and regulations continue to evolve, the sector is expected to attract a broader range of investors, including retail investors, who are looking for diversified and innovative investment opportunities.
