Key insights
In the evolving landscape of global finance, digital assets (DAs) have emerged as a compelling asset class with a market cap in excess of $3.27 trillion (1). Though initially centered around cryptocurrencies like Bitcoin and Ethereum, DAs have grown in scope and scale to cover a wide range of financial instruments, asset classes and strategies, each with their own potential and use cases.
Our research has identified five key factors that underpin the growing momentum of DA adoption:
1. Accelerating DA penetration
2. Diversification opportunity against traditional asset classes
3. Growing institutional interest in DAs
4. Maturing DA infrastructure
5. Maturing regulatory landscape
1. Accelerating DA penetration
DA adoption significantly accelerated in 2021-2022, reaching 635 million users by mid-2024 and mirroring growth in adoption rates of the internet and mobile networks of the late 1990’s and early 2000’s (2), as shown in Exhibit 1 below. As such, DA adoption is estimated to reach 8.4% of the global population by year-end 2024, comparable to the mobile networks in 1999 (8.1%) and the internet in 2001 (8.0%).
DAs are built using the existing internet and mobile infrastructure which makes them able to grow quickly without the need for dedicated hardware buildouts. Further growth potential can be found in the rapid expansion of decentralized finance and the Web3.0 economy, as well as the digitalization and tokenization of traditional financial products and real world assets.
As the use of cryptocurrencies and tokens becomes more common and spreads to a greater range of underlying assets, DAs will likely become a more systematically adopted asset class.
Exhibit 1 - DA penetration is potentially set to mirror mobile & internet penetration over the same timeline
2. Diversification opportunity against traditional asset classes
DAs offer an alternative diversification opportunity. Certain DAs can behave like fiat currency alternatives (stablecoins), like financial derivative instruments (tokenized assets), or like pure play asset investments (NFTs). The largest DAs have low long-term correlation with traditional assets – for example, Bitcoin’s correlation with the S&P 500 is 0.2 (average 6-month trailing correlation of bitcoin weekly returns with S&P 500 over the period of January 1st, 2025 to July 31st 2024)(3).
Exhibit 2 below shows that adding 5-20% of BTC to a traditional 60:40 portfolio historically produced superior returns on an absolute as well as risk-adjusted basis.
Exhibit 2 – High volatility calls for targeted allocations
3. Growing institutional interest in DAs
The increasing institutional adoption of DAs is a strong indicator of potential growing legitimacy of this new asset class (Exhibit 3). In January 2024, 11 Bitcoin ETFs from multiple fund managers were approved by the US Securities and Exchange Commission (SEC)(4), increasing the perceived legitimacy of DAs among investors. In a recent survey conducted by EY-Parthenon, 93% of institutional investors surveyed stated they believed in the longer-term value of Web3.0 blockchain and/or DA products. Moreover, 69% of them stated they planned to increase their firm’s asset allocation in DAs over the next three years provided regulatory clarity and custodian security were present (5).
Exhibit 3 – High volatility calls for targeted allocations
4. Maturing DA infrastructure
The DA industry has evolved and broadened from the launch of Bitcoin in 2009 to now encompass multiple types of currencies and tokens built on and around blockchains(6). The infrastructure to trade these DAs is consolidating around traditional finance and digital native players. Traditional finance players are establishing their role across core elements of the DA investment value chain, from pre-trade and execution to post-trade support and other value-add services. Digital native players dominate DA-specific functions, such as issuance and tokenization, trading, and DA custody services, leveraging their technological capabilities. Further supported by $105+ billion of cumulative VC investment in DA-related infrastructure (7), these players provide an increasingly available platform to easily trade DAs.
While other revolutionary technologies took decades to mature, crypto has reached its inflection point at a much faster pace(6). Crypto-oriented clients and maturing DA infrastructure are driving the need for wealth management (8), and attracting more professionals to the sector.
5. Maturing regulatory landscape
The regulatory landscape for digital assets continues to develop and evolve across major markets. New DA-specific proposals and regulations are underway in key jurisdictions, including the US, UK, and EU, which could drive further adoption and market growth, alongside enhanced regulatory oversight and investor protection. For example, the SEC approved 11 Bitcoin ETFs on January 10th, 2024, and Switzerland enacted regulation for blockchain on August 1, 2021. In Europe the Markets in Crypto Assets Regulation (MiCA) entered into force in June 2023 (9).The Virtual Assets and Related Activities Regulations (VARA) is the world’s first, tailor-made Virtual Asset regime from the emirate of Dubai (10). As DA regulations are implemented and continue to mature, we expect to see market impact in the form of enhanced liquidity and improved accessibility as compared to some traditional asset classes.
About Us
Lionsoul Global is a digital asset solutions provider offering a secure, compliance-focused and institutional-grade platform with custody of assets provided by a qualified custodian. Our digital asset investment solutions span from simple to multi-manager strategies that are professionally selected and monitored. We offer a digital-first experience from onboarding and investing to performance reporting, supported by our dedicated investment professionals.
Endnotes
1.https://www.forbes.com/digital-assets/crypto-prices/?sh=28d84ef52478
2.The World Bank: World population:
https://databank.worldbank.org/indicator/SP.POP.TOTL?Id=fdaa1724&Report_Name=Population&populartype=series#
Individuals using the Internet (% of population):
https://data.worldbank.org/indicator/IT.NET.USER.ZS?end=2023&start=1990
Mobile cellular subscriptions:
https://data.worldbank.org/indicator/IT.CEL.SETS?end=2023&start=1990
University of Cambridge: University of Cambridge 2nd Global Cryptoasset Benchmarking Study, Dec 2018:
https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-benchmarking.pdf
University of Cambridge 3rd Global Cryptoasset Benchmarking Study, Sep 2020:
https://www.jbs.cam.ac.uk/wp-content/uploads/2021/01/2021-ccaf-3rd-global-cryptoasset-benchmarking-study.pdf
Crypto.com: Crypto Market Sizing reports:
https://contenthub-static.crypto.com/wp_media/2024/08/Crypto.com-Crypto-Market-Sizing-H1-2024-1.pdf
https://contenthub-static.crypto.com/wp_media/2024/01/Crypto-Market-Sizing-2023.pdf
https://content-hub-static.crypto.com/wp-content/uploads/2023/01/Cryptodotcom_Crypto_Market_Sizing_Jan2023-1.pdf
https//assets.ctfassets.net/hfgyig42jimx/5i8TeN1QYJDjn82pSuZB5S/85c7c9393f3ee67e456ec780f9bf11e3/Cryptodotcom_Cryp
to_Market_Sizing_Jan2022.pdf
https://crypto.com/images/202107_DataReport_OnChain_Market_Sizing.pdf
https://assets.ctfassets.net/hfgyig42jimx/5u8QqK4lqjEgL506mOx4m3/d44d8e204aecfc75a839e2a9d505f5d1/Crypto.com_Data
Report-_On- chain_Market_Sizing.pdf
https://assets.ctfassets.net/hfgyig42jimx/2v4KwFFtAHFNeTjRAuYZGR/74bcdc34919db586e2a495422287595e/Crypto.com_Dat
a_Report_-_On- chain_Market_Sizing.pdf
University of Cambridge: 2nd Global Cryptoasset Benchmarking Study, Dec 2018:
http://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-benchmarking.pdf
University of Cambridge 3rd Global Cryptoasset Benchmarking Study, Sep 2020:
https://www.jbs.cam.ac.uk/wp-content/uploads/2021/01/2021-ccaf-3rd-global-cryptoasset-bench-markingstudy.pdf
3.https://www.blackrock.com/us/financial-professionals/literature/whitepaper/bitcoin-a-unique-diversifier.pdf
4.https://www.sec.gov/newsroom/speeches-statements/gensler-statement-spot-bitcoin-011023
5.https://www.ey.com/en_us/insights/financial-services/how-institutions-are-investing-in-digital-assets
6.https://www.broadridge.com/resource/capital-markets/the-digital-asset-revolution-preparing-for-the-next-generation-of-financial-markets
7.https://www.galaxy.com/insights/research/crypto-and-blockchain-venture-capital-q3-2023/
8.https://channels.ft.com/en/ft-wealth/crypto-demand-from-
wealthyclients/#:~:text=Demand%20from%20clients%20has%20forced,bets%20on%20underlying%20blockchain%20
infrastructure
9.https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica
10.https://rulebooks.vara.ae/
Important Information
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