Institutional Portfolios Shift Focus to Bitcoin and Ether
A recent report by Bybit reveals that institutional investors have adjusted their portfolios, with a greater emphasis on Bitcoin and Ether. As of January 31st, 2024, these institutions allocated approximately 40% of their portfolios to each of these top cryptocurrencies. Additionally, they dedicated 15% to stablecoins and only 5% to alternative coins.
On the other hand, retail investors have a lower concentration in Bitcoin and Ether, making up around 35% of their total portfolio by January 31, 2024. Retail investors have shown a distinct investment approach compared to institutions, as they are more inclined towards altcoins and holding more cash, as evidenced by their larger stablecoin allocation.
Institutions Favor Ether Over Bitcoin
According to Bybit’s report, institutions have been heavily investing in Ether since September 2023. This trend has become even more pronounced in January 2024, with approximately 40% of institutional portfolios dedicated to Ether.
Ether currently holds the largest share in institutional portfolios as of January 31, 2024. The increased allocation to Ether can be attributed to institutions anticipating the positive effects of the Dencun upgrade on Ethereum. This is particularly significant considering Ether’s underperformance in 2023.
The upcoming Dencun upgrade, set to launch in March 2024, aims to reduce transaction costs on Layer 2s through proto-dank sharding. While it may not have the same impact as the Merge upgrade, its successful implementation is likely to provide a boost to Ether and other Layer 2 tokens.
Furthermore, there is optimism in the market regarding the potential approval of a spot Ether ETF by the SEC by the end of 2024.
Institutional Skepticism Towards Layer 2 Reflected in Altcoin Portfolios
Despite the growing prominence of Layer 2 solutions, institutions are expressing skepticism towards them. This is evident in their altcoin portfolio allocations, which signal a negative outlook on Layer 2 technology, particularly in anticipation of the Dencun upgrade.
It is believed that the fee reduction on Layer 2 could initially decrease revenue for these chains. However, in the long run, it could provide a competitive advantage by increasing margins. Bybit also highlights the progress made by Polygon’s zkEVM technology, which has achieved Type 1 status.
While institutional sentiment towards Layer 1 solutions appears strongly bullish based on the chart, there has been a decrease in the average dollar value of Layer 1 assets held. However, this decline is significantly less pronounced compared to the drop observed in Layer 2 assets.
Institutions have been cautious about high-risk, high-return investments during this period. They have divested from highly volatile token categories such as meme, AI, and BRC-20 tokens, with the exception of Layer 1, DeFi, and metaverse tokens.
Hot Take: Institutional Preference for Bitcoin and Ether Indicates Growing Confidence
The increasing allocation of institutional portfolios to Bitcoin and Ether reflects a growing confidence in these cryptocurrencies. Institutions are recognizing the potential of Ether and its upcoming Dencun upgrade to drive its value higher.
However, their skepticism towards Layer 2 solutions suggests that they are taking a cautious approach towards this technology. They may be waiting for further developments and improvements before fully embracing it.
Overall, institutional investors continue to play a significant role in shaping the crypto market. Their preferences and allocations can have a considerable impact on the prices and performance of different cryptocurrencies.
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