The crypto industry has long been anticipating the time when institutional investors regard crypto as a legitimate asset class and allocations to crypto assets in portfolios become standard practice – 2025 may be the year when this happens, Sygnum’s Head of Investment Research, Katalin Tischhauser, writes in our Crypto Market Outlook 2025. Download the full report to get the complete story.
Institutional allocations
We have seen the beginnings of crypto allocations in the balanced portfolios of large traditional financial institutions this year as well as the initiation of crypto investments by a small number of pension funds.
Filings show that an increasing number of funds from institutions such as BlackRock, Fidelity and Morgan Stanley have amended their prospectuses to allow exposures to crypto investments. The typical allocations range between 1 and 3 percent, but in some cases, the ceiling is set much higher (e.g. 25 percent for Morgan Stanley portfolios).
Some pension advisors (such as Cartwright in the UK) are now recommending a crypto allocation to pension funds. Although the US regulator of private pension funds has not yet changed its guidance discouraging crypto investments, some state pension funds have been investing in Bitcoin ETFs (Wisconsin and Michigan), with lawmakers introducing bills to direct the state pension funds to consider crypto allocations in several other US states (Arizona, Louisiana, Missouri, Ohio, Oklahoma and Florida).
The crypto industry has long highlighted the portfolio diversification benefits of crypto investments as well as their asymmetric risk/ return profile. The growth of the market has since made investments of a meaningful size possible, the regulatory risk has receded, and the involvement of the largest traditional financial institutions has credentialised the asset class and turned the risk of being an outlier by investing into having to justify not investing.
BlackRock’s recent detailed report on Bitcoin as a portfolio diversifier covers the same points the industry has long been arguing – however, coming from the world’s largest asset manager, it will support traditional institutions’ move into crypto. Options on the Bitcoin ETFs that recently started trading will do the same, as they allow for hedging and creating asymmetric risk profiles.
Central banks and local governments considering Bitcoin reserves may also start a genuine trend of treasury allocations to Bitcoin. Tesla, Block and MicroStrategy started this trend in 2020; however, since then, only a few microcaps followed suit. It is likely that despite the appreciation in MicroStrategy’s stock price, the example set by their treasury was more of a deterrent than something corporate treasurers were keen to follow, i.e. making huge leveraged bets on Bitcoin and investing billions versus a topline revenue of just over USD 100m and operational losses in their core business. However, the recent initiatives to add Bitcoin as a central bank reserve asset appear to have already encouraged a list of small companies to make treasury allocations to Bitcoin, and the trend could accelerate expand to large corporations. Shareholder proposals have been submitted to Microsoft and Amazon. Although the proposal was voted down at Microsoft, there is a growing trend of shareholders advocating for Bitcoin treasury reserves.
Regulatory clarity
2025 is likely to see regulation in the US that clarifies the status of crypto assets.
This would be transformative for the industry, with a number of potential benefits, including:
• Enabling institutional allocations to the crypto asset class
• Easier banking access for crypto projects, clarity on regulatory requirements for different token types
• Reduced legal overhead for crypto businesses
• Reinvigoration of innovation, investment and a move of talent into the industry
The stated policies of Donald Trump, the numerous indications that campaign promises are on track to be delivered on and the resignation of Gary Gensler suggest that the expectations of a clear and positive regulatory environment for crypto assets are likely to be fulfilled.
A best-case scenario would see tailored rules that take into account the differences between crypto assets and traditional securities, which in turn would:
• Enable decentralised protocols and applications to pass economic value to tokenholders while complying with reasonable disclosure requirements;
• Remove the basis for the lawsuits against various crypto trading venues “operating unregistered securities exchanges”
• Allow US-based crypto exchanges to be regarded as legitimate surveillable markets by the SEC, therefore removing the obstacle from the issuance of further crypto ETFs
Many jurisdictions have been well ahead of the US in enacting crypto regulations (e.g. Switzerland, Singapore, the UAE, Hong Kong and the EU), but as the US appears to take the lead, other countries are considering policies that will allow them to stay competitive. There have been indications from the UK and China already of intentions for more liberal crypto regulation.
Meanwhile, enshrining Bitcoin as a central bank reserve asset would be truly transformative. Already a number of US states as well as Brazil are introducing similar bills, and it is likely that if the US takes this step, further countries will follow suit. Recognising the surge in demand that this would catalyse is likely to compel governments to think strategically about how they might position themselves before the price moves.
ETFs
2025 inflows into crypto ETFs are likely to be substantially higher than the net inflows to date. Allocations to Bitcoin ETFs from traditional institutional investors have started but have so far remained muted. Hedge funds and retail investors have accounted for more of the inflows to date, as large institutions’ decision-making processes are slower and more involved. ETF issuers have been supporting sovereign wealth funds, endowments, pensions funds and insurers as they conduct due diligence on Bitcoin. BlackRock’s crypto asset allocation report was clearly born out of this process.
As these efforts bear fruit, coupled with a benign macro environment, favourable crypto regulation and potential catalysts (e.g. the Bitcoin Act), we expect to see institutional inflows into Bitcoin ETFs to start in earnest.
Meanwhile, Ethereum ETFs were met with a lot less interest than Bitcoin ETFs initially.
This was in part due to the sudden surprise approval and the resulting very short marketing period, Ethereum’s far lesser name recognition (approximately half of Bitcoin’s according to surveys) and the ETFs not benefiting from Ethereum’s staking yield, which compelled Grayscale Ethereum Trust holders to recycle their expensive Grayscale ETFs into spot Ether rather than into the other much cheaper ETFs. Ethereum’s bearish trends that have prevailed over the past 1.5–to 2 years also contributed to the lacklustre launch.
However, Ethereum remains the leading smart contract platform, with a broad range of use cases and tokens built on it, and until crypto index ETFs become feasible, it is the best proxy for the rest of the crypto market beyond digital gold – a de facto passive investment in the use cases and applications building across the crypto industry.
Inflows into Ethereum ETFs accelerated recently, roughly three months after these ETFs started trading. This is in line with many platforms’ requirements to only invest in products with a minimum of 90 days of trading history. If the inflows continue, this could reverse sentiment on Ether and help the asset outperform.
If regulation moves fast and crypto index ETFs launch relatively soon, they may attract inflows potentially at the expense of Ethereum ETFs in the latter part of 2025. However, if index ETFs take longer to materialise, then we expect to see inflows into the Ethereum ETFs accelerate strongly throughout 2025.
If a more favourable regulatory environment also results in allowing ETF issuers to access the Ethereum staking yield, this would further encourage Ethereum ETF inflows.
When new ETF launches become feasible in the US, we expect that most of the demand will target index and sector ETFs – just as it does in other markets. Passive investing is a substantial part of the investment landscape, and when crypto can offer the same products, they should be met with strong demand.
Single-token ETFs, however, are unlikely to find much adoption, as institutions who choose to manage active crypto portfolios in future will necessarily need to do so via the spot market because the list of ETFs will always be relatively limited. Retail investors will have some demand for other single-token ETFs, but this is not likely to be significant because the name recognition of crypto assets is limited beyond Bitcoin and minimal beyond Bitcoin and Ethereum.
The very low levels of Assets Under Management (AUM) in the Grayscale Solana (just over USD 100m) and XRP Trusts (a mere USD 5m) are a good indication of the lack of demand. For comparison, before the spot Bitcoin ETF launch, the Grayscale Bitcoin Trust already held USD 30bn in assets (currently over USD 110bn across the Bitcoin ETFs), and the Grayscale Ethereum Trust had close to USD 10bn.
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