A recent report from Bybit Research offers insights into the sentiment and asset allocation trends among institutional traders in the cryptocurrency market during the first three quarters of 2023.
The report from Bybit Research explores the asset allocation strategies of various cohorts, including institutions, VIPs, and retail traders, against the backdrop of the volatile market conditions since December 2022.
The findings highlight a strong preference among institutions for Bitcoin (BTC) over Ethereum (ETH) or alternative coins (altcoins), with roughly half of their portfolio dedicated to Bitcoin. Notably, institutions increased their holdings of Bitcoin during the volatile market conditions of 2023, a trend distinct from other user groups.
In the first three quarters of 2023, institutional traders almost doubled their Bitcoin holdings, with approximately 50% of their assets denominated in Bitcoin by September. The report attributes this significant increase to a bullish market sentiment and the expectation of the U.S. Securities and Exchange Commission (SEC) approving a spot Bitcoin exchange-traded fund (ETF).
In contrast, retail traders demonstrated lower Bitcoin holdings, possibly influenced by higher leverage levels in their trading activities. The report sheds light on the varied approaches and preferences of different market participants in response to the dynamic cryptocurrency landscape.
Institutional Traders Show Skepticism Towards Altcoins, Favoring Bitcoin and Ether
The report from Bybit Research sheds light on the asset allocation strategies of institutional traders and large Bitcoin holders (whales) in the cryptocurrency market. The findings reveal a widespread reduction in altcoin holdings among traders, with a noticeable decline starting in August.
In response to market conditions, institutional traders adopted a cautious stance, allocating 45% of their assets to stablecoins, strategically investing 50% in Bitcoin (BTC) and Ethereum (ETH), and dedicating 5% to altcoins. This reluctance towards altcoins, especially among institutional investors, is attributed to concerns regarding the volatility of these alternative assets.
Despite a general decrease in Ether holdings following the Ethereum blockchain’s Shapella upgrade, there was a notable increase in institutional traders’ Ether holdings in September. This uptick coincided with positive market sentiment fueled by excitement over news related to exchange-traded funds (ETFs).
The report suggests that institutional traders maintain a bullish outlook on Bitcoin, exhibit skepticism towards altcoins, and hold mixed sentiments regarding Ether. The research underscores a change in asset allocation strategy, emphasizing a shift back to Bitcoin over Ether. This shift is influenced by Ether’s extended decline against BTC and a subdued response to recently launched futures-based ETH ETFs.
The data for the research report was derived from Bybit’s active user base spanning from December 2022 to September 2023, with VIP traders defined as investors holding portfolios worth more than $50,000.
Bybit Research Unveils Institutional and Retail Trader Strategies in Bull and Bear Markets
The research conducted by Bybit unveils distinct asset allocation strategies among active users, defined as those engaging in more than 20 monthly trades. These insights illuminate nuanced patterns observed during both bullish and bearish market conditions.
A notable trend identified is the significant uptick in Bitcoin holdings by institutional traders during positive market sentiments. This differs from the behavior of retail traders, who demonstrated lower Bitcoin holdings, possibly connected to their engagement in higher levels of leverage.
Retail traders consistently held a higher percentage of stablecoins, a trend likely influenced by their practices of leveraging. During bull markets, they tended to reduce their stablecoin holdings, while in bearish or uncertain markets, there was an observed inclination to increase stablecoin holdings.
In contrast, institutional holders exhibited a decrease in the percentage of stablecoins during bearish markets and an increase during bullish markets. This suggests a potential ability to time the market successfully among institutional investors.
