Crypto Becomes Emerging Asset Class for Institutional Investors

Cryptocurrencies have evolved from a marginal experiment into an increasingly recognized financial asset. Initially regarded as a speculative tool for niche communities, crypto assets are attracting attention from institutional investors, private banks, and even pension funds.

This gradual shift reflects a broader recognition of crypto as a distinct asset class rather than a transient trend.

Several factors contributed to this reclassification. Investors are seeking new sources of diversification as correlations between equities and fixed income assets have increased in the low interest rate environment of recent years. An increase of correlation of assets within a portfolio contributes to lower diversification.

To maintain diversification, other alternative investments (with low correlation to equity and bonds) should be added to the portfolio.

Cryptocurrencies, particularly Bitcoin, have been perceived as a potential hedge against inflation and currency debasement. But there has been significant progress in crypto market infrastructure, with the rise of regulated custody services, institutional-grade trading platforms, and derivative products.

These developments suggest that crypto no longer is viewed as merely a speculative gamble. Instead, it’s becoming part of the institutional investment toolkit, alongside traditional asset classes such as equities, real estate, and private equity.

Retail investors—individual and non-professional buyers and sellers of crypto—use personal funds to enjoy broad and direct access to crypto assets. But institutional participation has been more cautious, constrained by regulatory, operational, and fiduciary concerns. Taxation remains a decisive factor.

The distinction between commercial and passive treatment, coupled with the availability of regulated fund structures, can lead to substantially different net outcomes for investors. Strategic tax planning is integral to portfolio construction.

State of Play

For retail investors, obtaining exposure to crypto assets is straightforward. They may purchase coins directly on centralized exchanges, store them in decentralized wallets, or access simplified exposure through retail-facing applications. A growing number of exchange-traded funds are available, offering exposure with varying degrees of risk.

Institutional investors face a more complex environment. Regulatory obligations, risk management requirements, and fiduciary duties often prevent them from holding crypto assets directly. Their exposure tends to be mediated through more traditional vehicles, such as:

• Exchange-traded funds, which provide spot or index-linked returns.
• Derivatives, such as futures and options traded on regulated exchanges like the Chicago Mercantile Exchange.
• Dedicated crypto funds, offering actively managed or quantitative strategies.

This evolution illustrates a broader trajectory. Institutions are now recognizing crypto as a diversification tool. This means crypto funds can provide a structured, compliant, and professionally managed entry point into the asset class.

Structurally, a crypto fund resembles any other collective investment vehicle. Capital is pooled from investors and deployed according to a defined strategy, which may range from simple spot exposure to sophisticated arbitrage or yield-generation strategies.

The structure and functioning is:

• Subscription and redemption. Investors subscribe to fund units, whose value is determined by the value of net assets.
• Investment strategy. The manager may adopt a passive exposure to Bitcoin, pursue multi-asset allocation across various tokens, or implement quantitative trading and arbitrage strategies.
• Custody. Assets are held by custodians specializing in digital security, often combining cold storage—a method for storing cryptocurrency private keys offline—with advanced multi-signature protocols.
• Administration. A regulated fund administrator performs net asset value calculation, reporting, and compliance monitoring.

The regulatory environment varies widely across jurisdictions. In Luxembourg, crypto funds may be established under structures such as a reserved alternative investment fund or a specialized investment fund. In the EU, the forthcoming Markets in Crypto-Assets, or MiCA , regulation aims to harmonize rules throughout the bloc.

The depositary plays a central role in keeping fund assets safe. In traditional finance, this involves the custody of dematerialized securities. In the crypto context, the challenge is more acute; custody entails the management of private keys, where any compromise results in irreversible loss.

Consequently, specialized custodians with regulatory approval and robust security infrastructure have emerged as indispensable partners in the fund ecosystem.

Beyond structuring and custody, distribution is a key differentiator. Institutional investors often prefer to access crypto strategies through platforms they already use, such as private banking networks or global fund distribution platforms. Embedding crypto funds into these established distribution channels enhances accessibility and accelerates mainstream adoption.

Taxation

The taxation of crypto investments remains fragmented across jurisdictions. Nevertheless, two general categories can be identified.

Commercial treatment: When trading activity is frequent, or leveraged, tax authorities may classify it as commercial activity. Gains are then taxed as ordinary business income, subject to progressive rates and social security contributions.

Passive (investment) treatment: When assets are held passively, capital gains taxation rules generally apply. This may involve a lower flat tax or exemptions for long-term holdings.

When certain strategies involve trading and exchange of tokens, there often is an advantage to lodge that strategy into a fund established as a corporation, also called a “blocker.”

Funds usually benefit from specific tax exemptions, making them a vehicle for achieving tax neutrality and optimizing the final net return of the strategy.

Strategic tax planning is therefore integral to the allocation decision.

Looking Ahead

The consolidation of regulatory frameworks—particularly with the implementation of MiCA in the EU—is likely to expand distribution opportunities, increase investor protection, and normalize the integration of crypto into institutional portfolios.

Over the next years, we will witness the most traditional asset managers—pension funds, insurance companies, and private banks— treating crypto not as an exotic allocation, but as an additional asset class.

The trajectory is clear: once peripheral, crypto is steadily establishing itself as a core component of global investment strategies.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Antoine Dupuis is a partner, international and corporate tax, at ATOZ Luxembourg, focusing on the private equity, real estate, and alternative investment sectors and multinational corporations.

Quentin Werlé is head of portfolio management at 6 Monks (6M), with experience in finance, portfolio management, accounting and operation, particularly in the insurance and funds sectors.

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