Bitcoin and Ether Dominate Institutional Portfolios: Bybit Report

The crypto market’s rally clearly indicates that institutions have shown a stronger preference for Bitcoin and Ether, allocating approximately 40% each to these top assets. As of January 31st, 2024, these entities have dedicated 15% to stablecoins and only 5% to alternative coins.

A new report by Bybit suggests that institutional portfolios have become significantly more focused, increasing from 50% to 80% over the past few months.

In contrast, retail investors display a lower concentration in Bitcoin and Ether, comprising around 35% of their total portfolio by January 31, 2024. Retail investors have been found to exhibit a distinct investment approach compared to institutions and are more inclined toward altcoins and holding more cash, as indicated by a larger stablecoin allocation.

Institutions More Bullish on Ether than Bitcoin

Institutions are heavily investing in Ether, according to Bybit’s latest report. This trend first started in September 2023 and became more pronounced in January 2024, reaching approximately 40%.

As of January 31, 2024, Ether stands as the largest holding in institutional portfolios. The heightened allocation to Ether may be attributed to institutions anticipating the positive effects of the Dencun upgrade on Ethereum, particularly in light of Ether’s underperformance in 2023.

The Dencun upgrade, scheduled for launch in March 2024, aims to reduce transaction costs on Layer 2s through a technique known as “proto-dank sharding.” While this upcoming upgrade may not have the same impact as the Merge, its successful implementation is likely to provide a boost to Ether and other Layer 2 tokens.

There is also considerable optimism in the market regarding the approval of a spot Ether ETF by the SEC by the end of 2024.

Altcoin Portfolios Reflect Institutional Skepticism Towards Layer 2

Despite the rising prominence of Layer 2s, institutions are showing optimism towards Layer 1s. Through their altcoin portfolio allocations, such investors have signaled their negative outlook on L2, particularly in anticipation of the highly awaited Dencun upgrade.

It is commonly believed that the fee reduction on L2 could initially lower revenue for such chains, but in the long run, it could provide a competitive advantage for them by increasing margins, Bybit explained. Moreover, recent advancements in zkEVM technology, such as the progress made by Polygon’s zkEVM, have attained Type 1 status.

While institutional sentiment towards L1 appears strongly bullish based on the chart, there has been a decrease in the average dollar value of L1 assets held. However, this decline is significantly less pronounced compared to the drop observed in L2 assets.

Despite witnessing remarkable returns in 2023, institutions have steered clear of these high-risk, high-return investments during that period. These high-profile entities have largely divested from highly volatile token categories, such as meme, AI, and BRC-20 tokens, with the exception of L1, DeFi, and metaverse tokens.