Growing Institutional Bullishness on Ether as Dencun Upgrade Approaches
A recent report from Bybit highlights a significant shift in institutional sentiment towards Ether, driven by the anticipated positive impact of the upcoming Dencun upgrade on the Ethereum blockchain. The upgrade, scheduled for March 13, will introduce various Ethereum Improvement Proposals (EIPs), including proto-danksharding aimed at reducing Layer-2 transaction costs. While the report acknowledges that the Dencun upgrade may not have the same impact as the previous Shapella upgrade, it is expected to bring a tailwind to ETH and other Layer 2 tokens.
Institutional Shift from Bitcoin to Ether
According to Bybit, institutional optimism towards Ether began in September 2023 and gained momentum in January 2024, with Ether making up around 40% of institutional portfolios. The report also notes that expectations for the SEC’s approval of a Spot Ether ETF by the end of 2024 are contributing to the positive sentiment surrounding Ether. Interestingly, institutions have been reducing their Bitcoin holdings since early December 2023, coinciding with Bitcoin’s testing of a crucial resistance level of $40k. It remains unclear whether this shift from Bitcoin to Ether represents a short-term tactical adjustment or a medium-term strategic reallocation.
Retail vs. Institutional Investment Styles
The report provides a breakdown of asset allocations between institutions and retail users. Institutions allocated approximately 40% to Bitcoin, 40% to Ether, 15% to stablecoins, and 5% to altcoins from July 2023 to January 2024. On the other hand, retail users have a lower concentration in Bitcoin and Ether, with these two assets accounting for about 35% of their total portfolios. Retail users also exhibit a distinct investment style, with a higher tilt towards altcoins and a higher percentage of cash in the form of stablecoins.
Retail Users Show Greater Confidence in Bitcoin
One notable difference between retail users and institutions is their relative optimism towards Bitcoin and Ether. Retail users were found to have stronger confidence in Bitcoin compared to Ether, and they did not invest in Ether to the same extent as institutions during the research period. Additionally, retail users have not reduced their positions in Bitcoin since late 2022 to early 2023. Bybit suggests that the higher leverage used by retail users may contribute to their investment preferences.
Retail Investors Maintain Higher Altcoin Exposure
The report reveals that retail users continue to hold larger positions in altcoins compared to Bitcoin and Ether. However, there is a cautious sentiment towards altcoins among most users. Institutions have significantly reduced their overall positions in altcoins, particularly in highly volatile token categories such as meme, AI, and BRC-20 tokens. They have largely exited these positions, except for L1, DeFi, and metaverse tokens. Bybit notes that despite the impressive returns of high-risk high-return bets in 2023, institutions have not been enthusiastic about them.
Hot Take: The Rise of Institutional Interest in Ether
The growing institutional bullishness on Ether indicates a shifting landscape in the cryptocurrency market. As institutions allocate more of their portfolios to Ether and reduce their Bitcoin holdings, it reflects a changing perception of the two leading cryptocurrencies. The upcoming Dencun upgrade is seen as a potential catalyst for further growth in Ether’s value and the broader adoption of Layer 2 solutions. While retail investors maintain their confidence in Bitcoin and show a higher exposure to altcoins, institutional investors are recognizing the potential of Ether as a long-term investment.
As an investor, it’s important to stay informed about the evolving dynamics in the crypto market. Understanding the preferences and strategies of both retail and institutional investors can help you make informed decisions about your own portfolio allocation. Whether you lean towards Bitcoin or Ether, it’s crucial to consider the underlying technology, market trends, and regulatory developments that may impact the value of these assets.
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