Private equity (PE) firms are taking a cautious approach to cryptocurrencies as an alternative investment option, recent research has showed.
Only 3% of PE firms with more than $15 billion of assets under management have invested in cryptocurrency, according to an EY survey.
“We believe that cryptocurrency and digital assets will continue to be an area that many private equity and venture capital firms will consider going forward,” lead authors Kyle Burrell and Mike Lo Parrino wrote in EY’s 2022 Global Private Equity Survey.
The survey results also show that most firms are exercising caution as they watch how governments and regulators treat cryptocurrency and determine how it fits into their strategic vision of the suite of alternative investment options in the future.
Additional research by S&P Global Market Intelligence data shows that just 67 private equity and venture capital funds launched since 2017 have investments in the digital assets.
Larger funds that have forayed into cryptocurrency are SoftBank Vision Fund 2, which has amassed $108 billion since its 2019 formation, and TPG Tech Adjacencies, which launched in 2018 and closed at $1.6 billion the following year.
“Relative to the US dollar and most other global stores of value, many cryptocurrencies, but bitcoin and ethereum in particular, have appreciated significantly in value,” Bruce Daley, a senior research analyst at 451 Research, told S&P Global Market Intelligence.
“If this trend continues, it will be inevitable that private equity firms turn to cryptocurrency to build wealth,” he added.
Highly Speculative, Volatile
Overall, however, cryptocurrencies remain a highly speculative asset, beset by bouts of strong volatility and the uncertain direction of regulators.
China has banned cryptocurrencies and Russia proposed a ban last month. While El Salvador was the first country to accept bitcoin as legal tender, dozens of other nations have implicit prohibitions in place.
The looming Russia-Ukraine conflict has pressured crypto prices in recent days. Bitcoin and other major cryptocurrencies have been feeling the heat as tensions escalate and investors shun riskier assets.
Bitcoin has fallen more than 5.5% in the past 24 hours, to $35,197.10, after coming under pressure for much of the past week.
“It had shown strong resilience prior to that but eventually got swept up in the risk aversion in the markets as tensions around Ukraine spiked,” Craig Erlam, strategist at OANDA, said.
- George Russell
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