BI's 2022 Crypto Outlook found assets under management in crypto ETPs are likely to grow beyond $120bn (£91bn) by 2028, even without large price increases, as they are fuelled by increasing institutional demand and expected changes in US policy.
It found institutions with crypto positions had risen to 52 per cent last year, from 33 per cent in 2019, which it said would bring more liquidity and, possibly, less volatility to the space.
BI believes aided by clearer regulation, crypto could evolve from a niche offering to a more established investment product and eventually enter the mainstream.
Julie Chariell, senior fintech industry analyst at Bloomberg Intelligence, said: "Bitcoin turns 13 years old in 2022, barreling into its teenage years marked by greater independence in the form of decentralization, some rebelliousness, as seen in its volatility, and formation of identity as in its store of value or medium of exchange.
"With some discipline, through regulation, crypto has the potential to achieve acceptance by peers in the shape of mainstream adoption."
The Crypto Outlook report analyses the global crypto sector and the trends driving its growth and evolution.
It predicts regulatory approval could allow for the launch of a spot Bitcoin ETF by the end of 2023, which in turn would spark "tens of billions in assets added to crypto funds" as regulation becomes clearer in this space.
In contrast, investors seeking crypto exposure currently are left with futures ETFs "which incur roll costs and trusts that trade away from their underlying value", the report said.
Strong growth
US-based advisers currently control about $26tn (£20tn) assets, but only a small minority have exposure to crypto. And most of those typically allocate 1 per cent or less of their clients' portfolios to the digital asset class.
But if the industry moved from a niche to a more established investment product, BI believes exchanges such as Coinbase and FTX would see volume and revenues grow strongly.
The report also points to a "distinct possibility" of the US launching a central bank digital currency in the coming years.
BI estimates there are at least 107 cryptocurrency funds with 119 share classes listed on public exchanges globally, including ETFs, CEFs, mutual funds and trusts.
This, it stated, showed fund issuers see "massive potential" for asset growth in the crypto space.
There are 15 blockchain- or crypto-themed equity ETFs currently trading on US exchanges, up from a mere four in March 2021, while sector assets have levelled off at $1.9bn (£1.45bn), BI stated.
The research provider expects the number of funds to increase slightly alongside assets in 2022 while the SEC withholds approval of spot Bitcoin ETFs.
James Seyffart, ETF strategist at Bloomberg Intelligence, said: “The number of publicly listed cryptocurrency funds – mostly tracking Bitcoin and Ethereum – should sustain the rapid growth of the past two years through 2022 and into 2023 as more countries allow the launch of spot products and regulators get more comfortable with digital assets.
“In the US, regulatory concern is the top reason advisers haven't invested in crypto assets. We believe a Bitcoin ETF approval would alleviate these concerns."
He added: "The SEC has regulated the crypto industry with enforcement rather than offering regulatory clarity thus far but the industry is likely to get significantly increased clarity over the coming years from Biden's crypto executive order and from SEC rule proposal expansions. All of which will cause the growth of crypto fund assets.”
carmen.reichman@ft.com
