Ethereum is now the largest institutional crypto asset

• According to a report from Bybit, institutions are heavily allocating their portfolios to Ethereum and Bitcoin, while retail users are more bullish on Bitcoin.

• Bybit’s report highlights a shift in market sentiment since December, with institutions now favoring Ethereum due to the expected Dencun upgrade and reducing altcoin positions.

• Despite Solana’s strong performance in the third quarter of 2023, Bybit data suggests that neither institutional nor retail users are interested in holding the token, with SOL currently accounting for only a single-digit percentage of institutional portfolios as of January 31.

A new report from Bybit Research claims that institutions are over-allocating their portfolios to Ethereum (ETH), followed closely by Bitcoin (BTC), in stark contrast to retail users who are more bullish on the latter.

Bybit’s report, which surveyed traders who own assets on exchanges, showed that institutions have increased their portfolio concentration in Bitcoin and Ethereum to 80%, with Ethereum’s investment increasing significantly, due to the expected Dencun upgrade. At the same time, retail users have a lower concentration in these assets and a higher inclination towards altcoins, the report added.

Ethereum is currently trading above $3,100 and is up 33% year to date, outperforming Bitcoin due to factors including its deflationary supply since its switch to proof-of-stake, low levels of ETH held on exchanges, and increased staking activity.

In a recent report, Bernstein analysts Gautam Chhugani and Mahika Sapra also highlighted the growth of Ethereum’s DeFi ecosystem and Layer-2 network, as well as the expected Dencun upgrade, as key catalysts for ETH’s performance compared to the world’s largest digital asset.

This sentiment marks a change from the last report released by Bybit in December, which showed that institutions are bullish on Bitcoin, taking a wait-and-see approach on Ethereum, and investing more Ethereum and altcoins into Bitcoin in anticipation of the approval of a Bitcoin exchange-traded fund (ETF).

Bitcoin has risen 20% since the beginning of the year, outperforming the CoinDesk 20, a gauge of the largest digital assets, which is up 12%, according to CoinDesk Indices.

Bybit also observed that despite the high returns in 2023, institutions still significantly reduced their altcoin positions, especially in volatile categories such as Meme coins, artificial intelligence (AI), and BRC-20 tokens. Instead, institutions paid more attention to stable asset tokens such as Layer-1 and decentralized finance (DeFi) protocols.

AI tokens appear to be correlated with the performance of chip designer Nvidia, as the GPU giant is virtually synonymous with AI development. The company’s recent blowout earnings report has boosted AI tokens, with many large-cap tokens in the category, such as AGIX, up double digits in the last week.

While Solana (SOL) had a strong third quarter last year, rebounding and erasing many of the losses of the crypto winter, data from Bybit suggests that both institutional and retail users have little interest in holding onto the once-leading coin.

Bybit said that as of January 31, SOL accounted for only a single-digit percentage of institutional portfolios.