Institutions Are Quietly Bullish on Crypto

A recent report by Coinbase and EY Parthenon surveyed 361 institutional crypto investors. The report, titled "Volatility Drives Discipline, Not Retreat," highlights a strong preference for spot ETFs and ETPs (66%), thematic mutual funds, ETPs, and ETFs (39%). Interest in crypto futures ETFs and lending platforms declined. A surprising 74% of institutions expect crypto prices to rise in the next 12 months, and 58% believe crypto will offer attractive risk-adjusted returns through 2026.

While traditional concerns like volatility and market manipulation are decreasing, new worries are emerging. Regulatory uncertainty is a major concern for 66% of respondents (up from 52%), and custodian security is equally concerning (66%, double from 33% last year). A lack of internal expertise also rose to 15%. Market structure (78%) and licensing for digital asset financial firms (56%) are identified as areas needing the most regulatory clarity.

The Genius Act is expected to enable more stablecoin engagement (83%) and drive mainstream adoption for business transactions (69%). Institutions plan to increase their crypto exposure in 2026, with 73% intending to do so, though only 5% plan significant increases. Regulatory clarity (65%), new ETPs and regulated funds (51%), and improved infrastructure (46%) are driving these plans. The primary motivations for investing are crypto's innovative technology (79%) and its low correlation with other assets (51%).

Currently, nearly 70% of institutions allocate 5% or less of their AUM to crypto, but this is projected to decrease to 57% by 2026, with a rise in institutions allocating over 5%. While 94% currently hold BTC, this is expected to slightly decline to 91%. ETH holdings are projected to increase from 85% to 90%. Other altcoins are gaining traction, with 56% planning to hold them, including Solana (38%), Chainlink (26%), and XRP (25%), with XRP showing the biggest projected jump.

The volatility of Q4 last year led almost 50% of institutions to focus more on risk management, liquidity, and position sizing. 22% slowed down or delayed allocations. In terms of infrastructure, 56% use a multi-custodial model and will continue to do so, while 12% plan to switch to one. Cost concerns for custody have dropped significantly, with institutions prioritizing regulatory compliance (66%) and security/key signing protocols (66%).

Over the next two years, institutions are prioritizing trading, custody, and asset tokenization. They are increasingly partnering with crypto-native firms (68%), focusing on education (70%), hiring staff with crypto experience (47%), and running small pilot investments in crypto or DeFi (47%).

45% of firms currently use or hold stablecoins, with another 41% intending to do so. Stablecoins are valued for securities settlements (88%), internal cash management (85%), and 24/7 trading (85%). USDC is the leading stablecoin among institutions (86%), surpassing USDT (68%). 13% of institutions engage with DeFi, and another 43% plan to within two years. Lending protocols (70%) and derivatives (60%) are the most attractive DeFi areas. Tokenized real-world assets (RWAs) are of high interest to 63% of respondents, primarily due to faster trading and instant settlement (66%).

11% of firms are already investing in RWAs, and 62% plan to by 2027. Tokenization of traditional securities is expected to have a significant impact (61%), with efficiency gains in post-trade processes being a key benefit. Tokenized money market funds (50%), corporate bonds (49%), and government bonds (44%) are the most appealing asset classes. Regulatory uncertainty (67%) and integration challenges (59%) are the main hurdles for RWA investment.

Three key themes for 2026 are regulatory clarity, increased stablecoin adoption beyond trading, and the scaling of tokenization beyond pilot phases. Despite recent market downturns, institutional players remain overwhelmingly positive about crypto's future. There's a significant shift in attitude towards prioritizing security, regulatory compliance, and robust custody solutions, even at a higher cost. However, a gap in education remains, with some firms still considering single custodian setups, which presents a significant risk. The industry is seeing momentum with increased hiring of crypto talent, partnerships, pilot programs, and exploration of DeFi, stablecoins, and tokenized assets, supported by growing regulatory clarity.