Brokerage Firm Bernstein Says Institutional Adoption of Crypto Ongoing Despite the Crypto Winter

Asset managers that were actively investing in cryptocurrency markets in the bull market of 2020/21 continue to invest in the sector and remained committed to digital assets, with some planning to allocate more capital, brokerage firm Bernstein said in a research report Monday.

Private market investors continue to look for opportunities in the space, “albeit being way more valuation sensitive,” the report said. Therefore, “crypto converts” remain active in the sector, but those investors who were ambivalent about digital assets in late 2021 have delayed their plans.

Bernstein says it is seeing select large asset managers continue to build out their digital assets strategy and expects these strategic initiatives to result in “actual direct digital assets allocations 12-18 months down the line.” It said it also continues to have active conversations with a number of investment managers at different stages of interest in the sector.

"This is probably the most encouraging part of the institutional adoption cycle while recognizing that the actual impact on the market is probably 12 months away,” analysts Gautam Chhugani and Manas Agrawal wrote.

Crypto-native and venture capital (VC) investors raised very large fund sizes in 2021, with some in excess of $1 billion. In contrast, fund raises for “liquid crypto strategies” or tokens have been sub $100 million in size, the note said. There is intent to “deploy this dry powder in private rounds,” which means that private valuations are not correcting as much as crypto valuations.

Most investors were surprised by the seamless transition of the Ethereum blockchain to proof-of-stake (PoS), a process known as the Merge, but they were equally surprised that it was a “sell-the-news” event, with weak ether (ETH) price action after the switch, the note added.

The Merge was the first of five upgrades planned for the Ethereum blockchain and involved the transition from proof-of-work (PoW) to a more energy-efficient PoS consensus mechanism.

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