Institutional Traders Divided on Bitcoin vs. Ether: Bybit Study

The cryptocurrency market has long been dominated by retail investors, people operating individually or in small groups. Recent years have seen a significant shift as institutional investors—large-scale entities such as hedge funds, family offices, and asset managers—begin to take an active role in the decentralized finance landscape. A study by Bybit Research explores the current preferences of these powerful players, revealing a contrasting split in institutional interest specifically between Bitcoin (BTC) and Ethereum (ETH), the two largest cryptocurrencies by market capitalization.

Bitcoin has traditionally been the first choice for institutional players venturing into the cryptocurrency realm. Appreciated for its pioneer status, robust security, and simple value proposition as “digital gold,” Bitcoin represents a concept that is often easier for traditional financiers to grasp. Institutions are drawn to it as a potential hedge against inflation and a means to diversify investment portfolios. The recent research by Bybit, Indicates that Bitcoin’s predominance is facing a significant challenge from its closest rival, Ethereum.

Ethereum has cultivated a growing appeal among institutions, especially with the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs), both largely built upon the Ethereum network. These innovative sectors have showcased Ethereum’s capabilities beyond just being a store of value and have highlighted its potential as a foundational layer for a new financial ecosystem. As a result, many institutional investors have started reconsidering their positions, potentially favoring the broader applications Ethereum offers over the singular investment narrative of Bitcoin.

The Bybit study points to the emerging perception of Ether, the native cryptocurrency of the Ethereum network, as a dual-purpose asset. On the one hand, similar to Bitcoin, it can serve as a store of value. On the other, it is a utility token vital for transaction fees, smart contracts, and decentralized applications (DApps) on Ethereum. This dual utility presents a unique case for Ether that has piqued the interest of sophisticated investors looking for more than just wealth preservation.

Institutional sentiment towards Ethereum has also been buoyed by the anticipated upgrades to the Ethereum network, collectively referred to as Ethereum 2.0. The transition to a Proof of Stake (PoS) consensus mechanism, in particular, has promised improvements in scalability, security, and sustainability—a prospect that aligns with the priorities of many institutional investors, especially those with an eye on environmental, social, and governance (ESG) criteria.

Despite this growing interest in Ethereum, Bitcoin’s well-established status continues to afford it a significant degree of institutional favor. Its scarcity—only 21 million BTC will ever exist—combined with heightened market liquidity and the maturation of investment products surrounding Bitcoin, like futures and exchange-traded funds (ETFs), sustains its attractiveness as an institutional-grade asset.

The Bybit Research survey also highlights a key factor contributing to the Bitcoin versus Ether debate: risk tolerance. Bitcoin’s longer track record and larger market cap confer a sense of stability and lower volatility, appealing to institutions with lower risk appetites. Meanwhile, Ethereum’s greater potential for growth, coupled with its ongoing development, may attract investors with a higher tolerance for risk, seeking to leverage the disruptive potential of the technology.

Interoperability and the rise of other blockchain platforms, such as Binance Smart Chain (BSC), Cardano (ADA), and Polkadot (DOT), further complicate the investment decisions of institutions. The expanding ecosystem suggests that while Bitcoin and Ethereum currently dominate institutional considerations, there is an increasing openness to exploring alternative blockchain-based investment opportunities.

Regulatory considerations cannot be disregarded. Institutional investors have to navigate the uncertain regulatory landscape of cryptocurrencies. Clearer regulatory guidelines and enforcement can dramatically affect institutional investment flows into Bitcoin and Ethereum. For instance, Ethereum’s shift to PoS could draw regulatory distinctions between it and Bitcoin, influencing institutional portfolios.

The findings by Bybit affirm that portfolio diversification within the cryptocurrency sector is gaining acceptance among institutional investors. While earlier forays by these larger players may have favored the relative safety of Bitcoin, there is now a notable trend towards a more balanced engagement with the crypto market, with Ethereum snapping at Bitcoin’s heels.

Bybit’s research reflects an evolving narrative within the institutional investing community. As the cryptocurrency space matures, so too do the strategies and preferences of its major investors. Whether institutions will continue to favor Bitcoin’s security and status or shift more capital towards Ethereum’s broader utility and potential remains to be seen. In either case, the endorsement by institutional traders is a testament to the growing legitimacy and potential permanence of cryptocurrencies in the wider financial world.