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Digital asset custody is key consideration for institutional investors and wealth managers when investing in crypto and digital assets

Wednesday, January 05, 2022
Opalesque Industry Update - New research from London-based Nickel Digital Asset Management (Nickel), Europe's largest regulated and award-winning digital assets hedge fund manager founded by senior traders and investment professionals formerly from major financial institutions including Goldman Sachs and JPMorgan, reveals concerns over security are the biggest obstacle preventing institutional investors and wealth managers from investing in crypto and digital assets.

A survey of institutional investors and wealth managers, who collectively manage around $108.4 billion in assets, revealed that 79% cited asset security as one of the top three reasons for not investing in cryptocurrencies and digital assets. This was followed by 67% who said price volatility, 56% who cited market cap, and 49% who said the regulatory environment. Further 12% included the carbon footprint from Bitcoin and other cryptocurrencies in their top three reasons for not investing.

Gary Gensler, the chair of the US Securities and Exchange Commission has called on Congress to provide the agency with more authority to police cryptocurrency trading, lending, and platforms and 76% of the professional investors interviewed believe this will be granted next year. If the SEC is granted these extra powers, 73% of institutional investors and wealth managers believe this will have a positive impact on the price of crypto and digital assets - 32% believe it will have a very positive effect.

Henry Howell, Head of Business Development at Nickel Digital, commented: "Our research shows that institutional investors have correctly identified custody and security as a critical differentiator to this unique asset class. At Nickel Digital, we have helped drive the innovation and institutional-grade solutions that are paramount to the largest investors in the world. As a result, we are seeing more institutional investors investing in digital assets for the first time, and those that already have exposure are making further allocations."

Nickel Digital's infrastructure is designed to offer various access points to the crypto market Nickel currently has four funds investing in the digital asset space. Its market-neutral Digital Asset Arbitrage Fund pursues an absolute return strategy without expressing directional views on the underlying crypto assets market. It exploits market inefficiencies and price dislocations, and harnesses swings of volatility to deliver consistent positive returns within a strictly defined risk management framework. The fund delivered over 97% of positive months since inception over 2.5 years ago, with volatility of 3.5% and Sharpe of 3.7.

Diversified Alpha Fund is a non-directional multi-strategy fund which wraps a portfolio of attractive but hard-to-access and capacity-constrained strategies into a single, investible fund. Among the strategies it deploys are high-frequency market making, statistical arbitrage, relative value, volatility arbitrage, and trend following. The fund protected capital well at the time of distress in May 2021, delivering a record monthly performance of +4.7% despite the underlying market going through one of the strongest corrections in recent years. It runs with volatility of 7.5% and Sharpe of 3.

DeFi Liquid Venture Fund is designed to capture the growth potential of the broader digital assets space outside Bitcoin, spotting early winners in Layer 1 protocols and Decentralised Finance, the area of greatest financial innovation. The fund is an actively managed research-driven vehicle aiming at identifying early winners and capturing structural expansion of this space. Since its inception, it has outperformance bitcoin by a double-digit margin, highlighting greater innovation originated in the Defi space.

Nickel's Digital Gold Institutional Fund, a Bitcoin tracker, provides secure, efficient, transparent, and liquid access to physically allocated Bitcoin. It delivers institutional-grade precision of trade execution, trades 7 days a week and offers one of the industry's lowest expense ratios.

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