Crypto has ‘lost its shine’ for institutional investors, says Northern Trust executive

Watch CNBC's full interview with Northern Trust's Justin Chapman on blockchain adoption

Institutional investors lost interest in crypto after 2022 and even with this year's uptrend, their appetite for it hasn't come back yet, according to Northern Trust's head of digital assets and financial markets.

Justin Chapman told CNBC's "Crypto World" at the Digital Assets Week conference in San Francisco that institutions have shifted their focus to cryptocurrencies' underlying blockchain technology, but that his firm "has capabilities" in place should client interest in crypto assets rebound.

"Just after March the crypto market went off a cliff... the client interest has definitely gone off the same cliff in terms of institutional interest in in cryptocurrencies," he said.

"It's definitely quiet now, since 2022, from the institutional side," he continued. "Before that, we were seeing traditional fund managers looking to launch crypto funds, ETPs in Europe, which is the equivalent of ETFs in the U.S. -- that's really gone quiet. Even the hedge funds, who are pretty active in the markets, have certainly reduced their exposure within that particular space."

Meanwhile, leaders from the biggest financial institutions gathered at the San Francisco conference were energized when it came to the blockchain technology - specifically its potential to help tokenize real-world assets like gold for clients.

The "evolution of the technology" is moving into a "better place" in terms of support from market participants, Chapman said.

"As a firm, we have capabilities that sit there to administer [crypto trading] functions, but it's a pretty quiet market at the moment and [after] most of the issues we had last year, we haven't seen a rebound at all on the institutional side yet," he said.

Specifically, Northern Trust partnered with Standard Chartered in 2020 to launch Zodia, a crypto custodian for institutional investors.

Bitcoin has gained almost 75% this year after losing 64% in 2022. Trading was still to begin the year, with volatility falling to historic lows. The regulatory crackdown in the U.S. been a dark cloud over the industry while the banking crisis has helped push bitcoin's price higher. Both have brought volatility back to the market. Even as bitcoin currently struggles to break above the $30,000 level, investors agree it remains in a long-term uptrend.

"We're not focused that much on the asset class because the client isn't at the moment," Chapman said. "So we're not seeing that appetite to have that within their portfolios. If that changes, as a firm, we can account for those capabilities. But it's certainly lost its shine from the institutional perspective."