Insurers Slowly Warming to Crypto According to Goldman Sachs

Key Insights:

• 11% of U.S. insurers are currently invested in or considering cryptocurrencies.
• Crypto ranked fifth behind private equity, commodities, emerging market equities, and real estate equity.
• Insurers are still very cautious about this volatile asset class.

In its annual recently released insurance survey, Goldman Sachs (GS) polled 328 Chief Investment Officers (CIOs) and Chief Financial Officers (CFOs), including cryptocurrency-related questions for the first time. The participants represented more than $13 trillion in global balance sheet assets, around half of the global insurance industry.

One of the key findings was that insurers now see rising inflation as one of the most significant threats to their portfolios. The bank reported around 6% of those surveyed were already invested in crypto assets or considering doing so. Geographically, American insurers are slightly more interested, with 11% currently invested or considering cryptocurrencies, compared to Asian insurers at 6% and just 1% of those in Europe.

While these figures sound underwhelming, they represent an increase in interest in the crypto sector from executives in the insurance business. Around 20 CIOs responded positively to digital asset investments, which is surprising considering the current market carnage.

Institutional Interest Increasing

One significant difference between this bear market cycle and previous ones is that there has been a much greater institutional interest in the asset class, whereas previously, there was virtually none.

Major corporations such as Tesla, MicroStrategy, and Square bought and held on to Bitcoin (BTC) despite some of them being underwater on those holdings. This suggests conviction for the longer term and confidence that markets will rebound.

Insurers ranked crypto assets as the fifth asset class expected to deliver the highest returns over the next 12 months. They followed private equity, commodities, emerging market equities, and real estate equity. However, cryptocurrencies were ranked above middle-market corporate loans and infrastructure equities.

Goldman’s global head of insurance asset management and liquidity, Mike Siegel, commented:

“If this becomes a transactable currency, they want to have the ability down the road to denominate policies in crypto. And also accept premium in crypto, just like they do in, say, dollars or yen or sterling or euro.”

Mathew McDermott, Goldman’s global head of digital assets, added that he has been “positively surprised by the rising adoption by global Asset Managers, who clearly recognize the potential of this market.”

For the handful of U.S. insurers that do dabble in cryptocurrencies, they seem to prefer non-direct exposure investments such as funds offered by Grayscale, according to S&P research last year.

Crypto: Highly Volatile

Goldman Sachs has also warmed to digital assets, with recent reports suggesting a deal with the FTX crypto exchange to onboard derivatives products could be on the cards.

Cautious entry into a highly volatile asset class is expected, however. Crypto markets have resumed their downward march today, dropping 5.8% of total market capitalization over the past 24 hours. The figure currently stands at $1.29 trillion, slumping 58% from its peak level in November.