Statistics from CoinShares reveal institutional investors are favoring altcoins in their portfolios. This has led to altcoins making up 35% of investment products, an all-time high.
Altcoin Season is in Full Swing
CoinShare’s recent data shows inflows of crypto investments for three consecutive weeks. While these inflows have been minimal in the previous two weeks, hovering around $24-57 million, there was a surge of investments in the week ending on September 3rd.
Within this week, inflows jumped to $98 million. To put into context, this is a 308% increase in positive trading activity. The recent rise can be attributed to a rush of Bitcoin purchases, amounting to $59 million, which makes up 60% of inflows. This is good news for Bitcoin, but if we zoom out and look at the last few weeks, we see some fascinating activity.
Despite the recent Bitcoin purchases this week, for the previous 8 weeks, it was actually performing abysmally. Institutions were disinterested in BTC, leading to consistent outflows. It is only recently they have begun taking an interest in it again.
This means the previous two weeks of positive inflows can be attributed solely to the altcoin market. In the week ending on August 27, altcoins made up all inflows, swallowing Bitcoin’s $3.4 million in total outflows. And in the week ending on August 20, altcoin total inflows once again offset Bitcoin’s $2.8 million in outflows.
Returning to the most recent data, we see Ethereum and Solana leading the charge. ETH made up $14.4 million of inflows, and SOL made up $13.2 million. Incidentally, Solana more than doubled its assets under management (AuM) from the previous week, jumping from $15 million to $44 million.
Other altcoins, such as Cardano, Polkadot and Ripple, also made sizeable moves in the institutional world – all of which contributed to the recent inflow. Interestingly, Solana, Cardano, and Polkadot are all blockchain ecosystem projects, suggesting investment firms are looking towards alternatives to Ethereum.
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Investors Are Assessing Risk Differently
One fair conclusion to draw from this is institutional investors are reevaluating their ideas about the crypto industry. The fact they are looking beyond the established giants, such as Bitcoin and Ethereum, and towards smaller blockchains, suggests their ideas about risk have altered.
Generally, other blockchains are treated with caution as they have less of a history than BTC and ETH, but as the industry as a whole matures, so are people’s ideas. Throughout the year, we have seen institutions taking more and more of an interest in DeFi projects, many of which exist (or are planning to operate) on other blockchains.
We have seen institutions such as Greyscale and Neuberger Berman entering the DeFi space, with many others sure to follow. They have clearly noticed the huge expansion in industry, such as its $100 billion in total value locked (TVL). However, TVL does not capture all the successes present within DeFi as it offers no insights on how exactly the money is being used – to examine that, a different metric is needed.
This is where the Utilization Rate comes in. It is the ratio of assets being used by a platform or project, divided by the TVL. Statistics from HashFlow reveal the DeFi utilization rate has spiked several times throughout the year.
Institutional investors will be aware of this and are clearly trying to capitalize on it. Not only have they recognized this, but they will have been paying attention to other markets inside DeFi, such as NFTs (which have begun to rise again) and loans (with Aave recently receiving its own institutional index fund).
Overall, the altcoin market is looking lucrative, and DeFi may be the driving force behind it. In the last few weeks, investment firms have clearly noticed this, and are beginning to even view altcoins as more desirable than BTC. All in all, this is shaping to be an unusual bull market for the industry.
Do you think Ethereum will be overtaken by a rival blockchain within the year? Let us know in the comments below.
About the author
Kai Morris is a crypto and DeFi specialist and researcher. He has a B.A Hons in Law and Philosophy at the University of Essex, where he studied complex economic, legal, and ethical theory relevant to the FinTech landscape. Kai has a particular interest in decentralization and privacy blockchains, as they directly relate to our human rights and flourishing. He cares about blockchain, DAG, and DeFi as a means of positively changing our lived experiences. Kai is an investor in Ethereum and Monero.