The crypto market recovery clearly shows that institutions are favoring Bitcoin and Ether more, investing around 40% each in these top assets. As of January 31, 2024, these companies have committed 15% to stablecoins and only 5% to alternative coins.
A new report from Bybit suggests that institutional portfolios have become significantly more focused, increasing from 50% to 80% in recent months.
In contrast, retail investors have a lower concentration in Bitcoin and Ether, which represent about 35% of their total portfolio as of January 31, 2024. It has been found that retail investors have a different investment approach compared to institutions and are more inclined towards altcoins and holding more cash, which is indicated by a larger stablecoin allocation.
Institutions are more bullish on Ether than Bitcoin
According to Bybit’s latest report, institutions are investing heavily in Ether. This trend first started in September 2023 and intensified in January 2024, reaching around 40%.
As of January 31, 2024, Ether is the largest holding in institutional portfolios. The increased allocation to Ether can be attributed to institutions anticipating the positive impact of the Dencun upgrade on Ethereum, especially given Ether's weak performance in 2023.
The Dencun upgrade, scheduled to launch in March 2024, aims to reduce transaction costs at Layer 2 through a technique known as “proto-Dank sharding.” While this upcoming upgrade may not have the same impact as the merger, its successful implementation should provide a boost to Ether and other Layer 2 tokens.
There is also great optimism in the market about the SEC approving a spot Ether ETF by the end of 2024.
Altcoin portfolios reflect institutional skepticism towards Layer 2
Despite the increasing importance of Layer 2s, institutions remain optimistic about Layer 1s. Through the allocation of their altcoin portfolio, these investors have expressed their negative attitude towards L2, especially in light of the highly anticipated Dencun upgrade.
It is widely believed that the fee reduction on L2 could initially reduce revenue for such chains, but in the long term could give them a competitive advantage through higher margins, Bybit explained. Additionally, recent advances in zkEVM technology, such as Polygon's zkEVM advances, have reached Type 1 status.
While institutional sentiment toward L1 appears strongly bullish according to the chart, the average dollar value of L1 assets held has declined. However, this decline is significantly less pronounced compared to the observed decline in L2 proficiency.
Despite posting notable returns in 2023, institutions have stayed away from these high-risk, high-reward investments during this period. These high-profile companies have largely retreated from highly volatile token categories such as Meme, AI and BRC-20 tokens, with the exception of L1, DeFi and Metaverse tokens.
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