Institutional Investors Moving to DeFi and Altcoins Over Bitcoin: Report
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Demand for Bitcoin Weakens
According to a new report published by digital assets firm Genesis, the third quarter has seen institutional investors moving to decentralized finance (DeFi) and large-cap altcoins over leading cryptocurrency Bitcoin (BTC).
“In Q1 2021, Genesis first noted a significant decline in the weighting of BTC in our overall portfolio due to the relative lack of BTC-denominated trading opportunities. While this paused in Q2, it resumed over the third quarter due to the continued GBTC premium inversion and flattening of the basis curves.” the report read.
This could be the result of a significant structural change in the cryptocurrency market as retail exchanges go on a deleveraging spree.
For instance, during the second quarter of 2021, several digital asset exchanges had limited their leverage offerings, including Binance which reduced its levels to a maximum of 20x for accounts opened within less than a month. This overall made it less opportunistic for traders to profit from BTC-denominated trading activities.
Institutional Investors Eyes DeFi and L-1 Protocols
The report further highlighted a greater appetite in ETH from institutions to borrow and lend across several decentralized applications. In the meantime, layer-1 protocols including Solana (SOL), Terra (LUNA), Avalanche (AVAX), and Fantom (FTM) have witnessed a boost in demand to compete with Ethereum’s market share over transaction speed and security, incentive programs.
"While the alt rotation playbook reverted back to deploying capital towards BTC and ETH towards the end of Q3, the adoption of L1s opened up more opportunities to diversify portfolios."
Despite the lack of interest in bitcoin, the anticipation of the first futures-linked Bitcoin ETF in the U.S. has revived the market with traditional financial institutions like global investment banks and $100 billion asset managers showing strong interest in the product on Genesis as a CME futures liquidity provider.
In total, Genesis traded over $37 billion across derivatives and spot in Q3 while BTC accounted for roughly 61% of Genesis’ OTC trading activity, up 47% in Q2.