FOMO Pushes Institutions to Double Down on 5% Bitcoin Allocation — Laser Digital CEO

Institutional adoption has long been crypto’s holy grail. But since the U.S. approval of spot Bitcoin ETFs in January 2024, the debate has moved to how much exposure is enough. The new battleground is whether large investors should allocate over 5% of assets under management to crypto.

Any allocation above the pre-2025 “standard risk-adjusted threshold of 1-5%” would be a win for Bitcoin. That’s because it shows not only confidence, but also that institutions now consider crypto assets as a structural part of portfolio strategy.

Jez Mohideen, cofounder and CEO of Laser Digital, Nomura’s digital asset subsidiary, sheds light on what’s behind this momentum. In this interview, he breaks down why institutions are edging beyond 5%, how they weigh risks against long-term alpha, and why FOMO may be just as powerful a force as fundamentals.

Cryptonews: There are conversations around institutions planning to allocate more than 5% of their portfolios to crypto assets. Is this shift based on conviction in fundamentals, or by FOMO?

Jez Mohideen: Institutions increasing allocations above the 5% line reflects a combination of structural factors (ETFs, custody, accounting standards) and market sentiment.

But make no mistake: once peers move, no CIO wants to be left behind. In essence, this shift is being driven by structural adoption but is being accelerated by a competitive fear of missing out.

Can Bitcoin Deliver Real Diversification?

CN: If crypto remains highly correlated with equities during downturns, can you say that pushing allocations above 5% is real diversification?

JM: Correlation in stress periods exists, but diversification isn’t just about crisis-day correlation; it’s about long-term portfolio math. Potential characteristics of crypto exposure noted by some institutions include:

• Return distributions that differ from traditional assets
• Drivers such as adoption cycles, tech innovation, and monetary dynamics
• Tactical flexibility: yield strategies, lending, derivatives, etc.

So, while in panic scenarios, crypto seems to move with risk assets, over cycles, it still diversifies return streams. Allocations beyond 5% are less about day-to-day correlation and more about capturing an uncorrelated source of long-term alpha.

CN: Some critics argue that institutions are mistaking speculative growth potential for sustainable long-term value creation. How do you respond?

JM: Speculative activity is typically short-term in nature, whereas infrastructure-focused developments may represent longer-term market evolution. Today, we have regulated ETFs, tokenization platforms, institutional custody, and real yield products. This is investing in long-term architecture, not just betting on a trade.

Digital assets are evolving into a new asset class, much like venture or emerging markets once did. The early growth looks volatile, but the underlying adoption curve is what creates enduring value.

Institutions know the difference in identifying utility-driven investments in this space. They’re not buying memes but are building exposure to a new layer of financial market infrastructure with genuine network effects.

CN: Apart from volatility, crypto markets face unique risks like repeated hacks, smart contract failures, and regular regulatory crackdowns. Would you say institutions have underestimated such risks in pursuit of yield?

JM: From an institutional perspective, these risks are well understood and actively mitigated. Our fund prospectus and internal risk models, for example, explicitly address custodian insolvency, smart contract vulnerabilities, and regulatory uncertainty.

When it comes to institutional play, institutions are not chasing yield blindly, but are deploying capital through compliant channels, with robust due diligence, legal and operational safeguards in place.

Institutions Face Systemic Risk Questions

CN: If allocations keep rising, could institutional exposure to crypto become a systemic risk, as the case was during the subprime mortgage crisis back in 2008?

JM: The current share of digital asset allocations in global institutional portfolios is still modest. Unlike opaque mortgage-backed securities, crypto assets are transparent, auditable, and programmable.

Risk depends on investment horizon, mandate, and governance. Some long-term portfolios include modest allocations to crypto.

CN: Encouraging allocations above 5% could expose pension funds and retirees to risk that some people might consider unnecessary. What do you say to that?

JM: Risk depends on investment horizon, mandate, and governance. Some long-term portfolios include modest allocations to crypto, especially via yield-generating or tokenized instruments can enhance returns without compromising safety.

The key is education, transparency, and regulatory alignment, areas that institutions like us focus on through their compliance frameworks and partnerships.

CN: Governments are naturally hostile towards privacy tools and crypto mixers such as Tornado Cash. Do you think there’s a risk that bigger allocations could be frozen or restricted by regulators overnight?

JM: Regulatory scrutiny of privacy tools is real, but it does not extend to regulated institutional holdings. Institutions typically avoid privacy coins and mixers, focusing instead on compliant assets and venues.

The integration that institutions do with trusted, compliant counterparties helps establish TradFi best practices in the digital asset ecosystem. The foundation being set now will ensure regulatory-grade liquidity and credit risk management, shielding clients from abrupt policy shifts.

CN: If Bitcoin or Ethereum fall into another prolonged bear market, what would it mean to institutions that have allocated more than 5% of their portfolios to crypto?

JM: Institutions are prepared for volatility and factor in such scenarios into their fund models. Crypto allocations are often part of multi-strategy portfolios, including covered calls, arbitrage, and staking.

A bear market may reduce mark-to-market value, but it also opens alpha opportunities through volatility harvesting and strategic rebalancing – key strategies which institutions, especially those with a TradFi foundation, have an edge in.

In essence, the institutional mindset is geared for a long-term play; not just to invest, but to navigate cycles.

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