Growing Appetite for Cryptoassets in the UK, New Research Reveals

New research with UK institutional investors and wealth managers reveals a growing appetite for cryptoassets.

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, says the UK is one of the most attractive markets for hedge fund managers focusing on crypto and digital assets, as new research reveals potential for strong growth in the country.

Nickel’s clients include institutional investors, global wealth managers and ultra-high net worth individuals from around the world. Nickel Digital recently commissioned a survey with 23 institutional investors and wealth managers in the UK who collectively oversee $66.5 billion in assets and who currently have some exposure to digital assets.

The survey revealed that six of those interviewed expect to dramatically increase their exposure to cryptoassets between now and 2023, and another 11 said they will also add to their exposure.

The Appeal of Cryptoassets

The three main reasons given for greater allocation to digital assets is the structural long-term capital appreciation prospects of cryptoassets – the view cited by 16 of the 23 UK-based professional investors.

This is followed by nine who said having some exposure to cryptoassets, they have become more comfortable and confident in how the asset class works and the infrastructure around it, and the same number (nine) who said it was because of the improving regulatory environment.

However, the survey also identified several hurdles to investing in cryptoassets. Some 16 of the 23 UK based professional investors interviewed cited concerns about the relative size of the cryptoasset market and its liquidity as an issue, and the same number cited a lack of transparency in the market.

Some 15 of the 23 UK based professional investors said concerns over custodial services for cryptoassets was a hurdle in terms of investing in the asset class, and 15 of those interviewed also said this about market volatility.

Nickel Digital’s funds have delivered strong performance despite recent crypto market corrections with its flagship Digital Asset Arbitrage Fund posting record returns in April and May, the months of intense selloff in the Bitcoin market.

The fund was up +4.1% in April and +2.6% in May, in the face of Bitcoin dropping more than 40% from April’s highs, taking H1 2021 performance to +12.6% with a Sharpe of over 4, comfortably outperforming gains of 2.5% for an average hedge fund in a closely watched HFRX Equity Market Neural Index, its closest market-neutral benchmark.

Anatoly Crachilov, CEO and Founding Partner of Nickel Digital, commented:
“Despite the recent correction in the crypto market, our survey confirms there is an ever-increasing appetite for this asset class among professional investors, willing to take constructive longer-term view on this asset class.”

“We are glad to see increasing adoption of digital assets by many professional investors in the UK. We would be honoured to help forward-looking investors understand and navigate this nascent market by sharing our multiyear financial experience, originated in major Wall Street banks and now successfully applied to crypto ecosystem over the last few years.”

Addressing Security and Volatility Concerns

Fiona King, Nickel’s Head of Institutional Sales said:

“We are looking to address many of the concerns investors might have, not least the high volatility of the crypto market. To that end, the recent performance of our market-neutral arbitrage fund demonstrated its ability to protect capital, as well as to deliver consistent and repeatable returns during turbulent times, such as April and May 2021.”

Henry Howell, Nickel’s Head of Business Development added:

“Security of clients’ assets is paramount at Nickel. We deploy independent institutional-grade custody models in partnership with US-based Fidelity and UK-based Copper. using a range of sophisticated cryptographic solutions, including distributed private keys and MPC (multi-party computation) vaults.

“The approach is based on air-gapped, multi-signature, cross-organisation setup, thus mitigating a ‘single point of failure’, typically associated with self-custody of crypto assets. In our setup, the joint control over fund assets is retained by an independent fund administrator and fund custodian at all times.”

Offering 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 cryptoassets 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 95% of positive months since its inception two years ago, with volatility of 3.5% and Sharpe of over 4.

Diversified Alpha (Digital Factors) Fund is a non-directional multi-strategy fund that 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 in May, delivering a record monthly performance of +4.7% despite the underlying market going through one of the strongest corrections in recent years.

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 the structural expansion of this 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 available 7 days a week with one of the industry’s lowest expense ratios.

The family of defensive funds, including Defensive Bitcoin and Defensive Ethereum funds, to be launched in September, aims to offer institutional-grade exposure to Bitcoin and Ether while managing the downside volatility of such portfolios. Nickel will apply an overlay of derivative instruments aiming to reduce the drawdown of these portfolios while capturing the majority of the upside.

Footnotes:
(1) Nickel Digital commissioned the market research company Pureprofile to interview 40 wealth managers and institutional investors in the USA. The survey was conducted online in May and June.

Prepared by Suzanna Hayek