KPMG Canada's partner Kunal Bhasin suggests that the surge in debt and inflation has likely enticed institutional investors to explore cryptocurrency.

According to an April 24 report from accounting firm KPMG, institutional investors in Canada significantly increased their exposure to cryptocurrency last year compared to the previous bull market.

The survey, which received 65 responses, revealed that nearly 40% of institutional investors reported having direct or indirect exposure to crypto assets in 2023, up from 31% in KPMG's 2021 study. Among the respondents, 31 identified as institutional investors managing over $500 million in assets, while the remaining 34 were financial services organizations.

The study also found that one-third of institutional investors have allocated 10% or more of their portfolios to crypto assets, up from a fifth two years ago.

Kunal Bhasin, a partner at KPMG Canada's Digital Assets practice, suggests that firms are seeking to invest in alternative asset classes to hedge against debasement and as a reliable store of value amidst increasing inflation and rising debt in the United States.

Investors cited a maturing market and improved custody infrastructure as key factors driving their investment in crypto assets. Additionally, financial firms are expanding their offerings in response to increased client demand for crypto asset services.

The approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in Canada in February 2021 played a significant role in attracting local investors to the asset class, noted Kareem Sadek, another executive at KPMG's Digital Assets practice. Sadek added that the recent approval of spot Bitcoin ETFs in the United States was a milestone moment for many Canadian market participants.

The report found that half of the institutional investors surveyed have exposure to crypto assets through Canadian ETFs, close-ended trusts, or other regulated products. Additionally, 58% have exposure through the stock market, such as Galaxy Digital on the Toronto Stock Exchange, up from 36% in 2021.

Furthermore, more institutional investors are gaining exposure through derivatives markets, with 42% compared to 14% in 2021. However, there has been a slight decrease in exposure through venture capital or hedge fund firms, falling to 25% from 29% in 2021.