According to a CoinShares report of survey data published Tuesday, more fund managers see greater potential in Ethereum than bitcoin, despite the total value locked in Ethereum decreasing this year due to increased competition in the layer-1 space.
According to the survey, 42 percent of investors believe Ethereum has the most promising growth prospects, followed by 18 percent who believe bitcoin has the most promising growth prospects. The findings come as the market share of Ethereum investment products has increased from 11% at the start of the year to 26%.
“Two years ago, the conversations we were having were bitcoin and crypto is a joke,” CoinShares Investment Strategist James Butterfill, who wrote the report, told us.
“A year ago, it was OK, bitcoin is a really interesting concept; tell me more.” And the trend I’m seeing among investors this year is, “I want to look at the altcoin space, diversify, and see what else is out there.”
CoinShares’ first report of its kind, with data as of September 15, reflected the perspectives of fund managers representing more than $400 billion in assets under management. Buterfill intends to conduct a survey every two months with the same questions.
Despite respondents’ positive attitudes toward ether, roughly the same percentage of fund managers reported investing in bitcoin. While the two largest cryptocurrencies by market capitalization continue to be at the heart of digital asset investment portfolios, allocations to Cardano and Polkadot are growing.
During a virtual panel last week, Jan van Eck, CEO of fund manager VanEck, stated that the big development for crypto in 2021 will be ether’s performance and the Ethereum network’s transition from proof-of-work to proof-of-stake.
“People understand that many blockchain applications are built on top of this smart contract software,” he said.
In recent months, competition in the layer-1 space has heated up due to a growing demand for lower transaction fees and higher throughput than the proof-of-work Ethereum network currently provides.
According to defillama.com, Ethereum’s TVL dominance has dropped from 98.22 percent on January 1 to 68.78 percent on Monday.
Buterfill was surprised that less than 5% of respondents named Solana (SOL) as having the most compelling growth outlook, but he expects that number to rise in future polls. According to CoinGecko, the coin has the seventh-largest market capitalization at around $48 billion, and its price was up about 19 percent over the previous seven days as of 3:30 p.m. ET.
“Though not as fast as something like Solana, they like Ethereum because it’s much bigger and more decentralized,” the CoinShares strategist said of some investors.
In the same panel as Van Eck, Brian Brooks, former CEO of Binance.US, stated that while layer-1 competitors will compete with Ethereum to be the smart contract platform king, bitcoin will continue to be a coin that crypto investors allocate to.
“Bitcoin is really the tracking stock of overall decentralization,” Brooks said. “It is the relatively stable energy-based replacement for gold, and it will always be there for a variety of reasons.”
Who is embracing digital assets, and why are they doing so?
According to the report, respondents who have digital assets in their portfolio were split on whether they thought inflation was permanent or transitory, implying that some do not invest in crypto as a hedge against inflation.
According to the findings, approximately 35% of investors see their investments in digital assets as primarily speculative, while 25% see it as a diversification tool.
“What it implies is that people are buying without considering any fundamentals, which I don’t believe is necessarily the case,” Buterfill said. “Perhaps it reflects the fact that investors still don’t fully understand the asset class, but they are aware that there is a lot of hype surrounding it, and they want to be a part of it.” It is a difficult asset class to comprehend.”
The report revealed stark differences in digital asset allocations by different types of investors.
While family offices have the highest allocation to cryptocurrency at 23%, retail and institutional investors are still wary, with surveyed wealth managers allocating only 0.1 percent to digital assets.
Of those who said they had not invested in cryptocurrency, 21% cited regulation as the primary reason, while 19% cited corporate restrictions.
Politics, government bans, and regulation account for 58% of the key risks perceived for digital assets. Volatility was named as a major risk by nearly 15% of respondents.
“I believe it is reasonable for investors to be concerned,” Buterfill said. “It’s a well-known unknown.” You can’t put the regulators’ mindset into a spreadsheet and predict what will happen, so it’s just a matter of sitting back and waiting.”