Bitcoin and Ether Lead the Way in Institutional Portfolios
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Institutions have mostly steered clear of high-risk, high-reward investments in volatile token categories such as memecoins, AI, and BRC-20 tokens during 2023.
The recent surge in the crypto market signals a clear inclination among institutions towards Bitcoin and Ether, with approximately 40% allocation to each of these top assets as of January 31st, 2024. Stablecoins make up 15% of their portfolios, while alternative coins represent only 5%.
According to a new report from Bybit, institutional portfolios have become notably more concentrated, rising from 50% to 80% over the past few months.In contrast, retail investors demonstrate a lower concentration in Bitcoin and Ether, making up around 35% of their total portfolio by January 31, 2024.
Retail investors tend to follow a distinct investment strategy compared to institutions, showing greater interest in altcoins and holding more cash, as evidenced by a higher allocation to stablecoins.
Institutions Show Stronger Optimism Towards Ether than Bitcoin
Bybit’s latest report indicates that institutions are making significant investments in Ether. This trend began in September 2023 and intensified by January 2024, with Ether accounting for approximately 40% of institutional portfolios.
As of January 31, 2024, Ether emerges as the primary asset in institutional holdings. The increased allocation to Ether may be linked to institutions anticipating the favorable impacts of the Dencun upgrade on Ethereum, especially given Ether’s lackluster performance in 2023.
The Dencun upgrade, set to roll out in March 2024, aims to lower transaction costs on Layer 2s using a technique called “proto-dank sharding.”
Although this forthcoming upgrade may not yield the same effects as the Merge, its successful execution is expected to bolster Ether and other Layer 2 tokens.Additionally, there is significant market optimism surrounding the SEC’s potential approval of a spot Ether ETF by the conclusion of 2024.
Institutional Skepticism Evident in Altcoin Portfolios Regarding Layer 2
Despite the increasing prominence of Layer 2 solutions, institutions are expressing optimism towards Layer 1 protocols. Through their allocations in altcoin portfolios, these investors are indicating a cautious stance on Layer 2, particularly in anticipation of the highly anticipated Dencun upgrade.It is widely believed that the fee reduction on Layer 2 could initially reduce revenue for these chains.
However, in the long term, it could confer a competitive advantage by boosting margins, as explained by Bybit. Additionally, recent advancements in zkEVM technology, such as the progress achieved by Polygon’s zkEVM, have achieved Type 1 status.
While institutional sentiment towards Layer 1 protocols appears strongly positive according to the charts, there has been a decrease in the average dollar value of Layer 1 assets held. Nonetheless, this decline is notably less pronounced compared to the drop observed in Layer 2 assets.
Despite witnessing significant returns in 2023, institutions have avoided high-risk, high-return investments during that period. These prominent entities have largely divested from highly volatile token categories, such as meme, AI, and BRC-20 tokens, with the exception of Layer 1, DeFi, and metaverse tokens.
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