Institutional investors from the U.S. are showing interest in Asian digital assets — much more than they did a year ago — and it will likely grow as more cryptocurrency ETFs may get approved globally, said Matt Long, Asia-Pacific general manager at digital asset prime brokerage FalconX, in an exclusive interview.

“Last year, there was not a lot of liquidity in the (digital asset) markets. There was less positive sentiment, more uncertainty coming out of 2022, which was annus horribilis for the digital asset industry,” he said.

This year, however, has been much more positive, he said, particularly after the Securities and Exchange Commission approved applications for 11 spot bitcoin ETFs in January. Annual volume traded through FalconX in 2023 was 2.25 times the amount traded in 2022, he added.

Flows into bitcoin ETFs have soared since the approvals, hitting record volume March 5 as $10.3 billion worth of assets were traded. BlackRock’s iShares Bitcoin ETF received $788 million in inflows March 5, reaching a total of $11.5 billion in assets under management.

Bitcoin has since hit $67,514.10 as of March 8, after starting the year at $44,172.

The price action in digital asset markets has been a major driver, Long said, along with the ETF approvals and the success of those ETFs. As a result, there are new funds entering the bitcoin ETF market from a range of sources, including institutional capital, he said.

One indication that institutional investors are showing interest in Asian digital assets is the level of engagement FalconX received during its new event, which was launched March 6. The program, titled the APAC Capital Connection series, brought together more than 30 allocators from North America and four Asia-Pacific digital asset portfolio managers to discuss their digital asset investment process, strategies, theses, performance and capabilities, he said.

The event generated multiple requests for follow-up meetings between the allocators and fund managers, as allocators seek “other avenues to generate alpha in digital asset markets by looking at allocating into different types of funds,” he said.

The type of funds ranged from “market neutral-style strategies” where a fund might look to take advantage of pricing differences potentially across different markets or different contracts, or full discretionary managers who take a bottom-up approach by analyzing a blockchain protocol or token before deciding to invest in the asset, Long said.

There are tailwinds for digital assets from both a demand and supply perspective, he added. First, there will be a new layer of distribution for crypto ETFs as large wealth management platforms have not yet approved clients to access them.

“Then there is the discussion around an ethereum ETF as well. So that again, potentially drives interest. We will probably see ETFs listed in other markets globally as well outside the U.S. that will continue to drive engagement,” he said.

He also pointed out that bitcoin halving, when the reward for mining bitcoin is halved, is likely to take place in April.

“What that means is at the moment, each day, there’s about 900 new bitcoins (rewarded to miners), but from April onwards, that reward … will go down to about 450. And so as we see this fresh capital coming into markets and a limiting supply base, particularly bitcoin, we think that that’s going to help drive continued interest for the rest of the year.”

FalconX closed its series D financing round at $150 million, led by the $770 billion Singapore sovereign wealth fund GIC and Los Angeles-based venture capital firm B Capital Group. Institutional investors Thoma Bravo, Wellington Management, Adams Street Partners and Tiger Global Management also participated in the funding round.

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