Fund managers continue to show preferences for Bitcoin and Ethereum as the crypto assets with the most compelling growth outlooks, according to a January 2024 survey published today by digital asset manager CoinShares.

A full 75% of respondents stated that Bitcoin and Ethereum present the most compelling growth opportunities.

In our latest digital asset fund manager survey:

– 75% of all respondents believe Bitcoin and Ethereum have the most compelling growth outlook.

– Digital assets weighting in portfolios rose from 0.4% of the average respondent portfolio to 1.3%, indicating an increasing…

— James Butterfill (@jbutterfill) February 2, 2024

Bitcoin retains its top spot as the crypto with the most appealing prospects, with 40% of surveyed investors singling it out. However, Ethereum has lost some ground, dropping nearly 15 percentage points compared to a similar survey in October 2023.

The overall allocation to digital assets among surveyed funds also reached record highs. Crypto now represents on average 3.8% of respondent portfolios, up substantially from 2.4% last fall. This figure is asset-weighted, giving more significance to larger managers, and suggesting broad-based growth adoption. It also indicates rotation out of traditional assets like bonds into alternative crypto assets.

Current crypto asset positions tell a similar story. The average crypto allocation comprises 58% Bitcoin and Ethereum, up appreciably from 50% in October 2023. This shift has mostly impacted alternative layer-1 blockchain protocols like Solana and Polkadot. While more managers believe Solana has a strong growth trajectory, few have purchased the asset.

An expanding number of investors also reported acquiring crypto assets for speculative reasons amid recent price rises. However, fewer see digital assets as attractive value investments at current levels. More encouragingly, client demand and portfolio diversification needs are the predominant drivers. Equity and bond correlations are tracking near record highs, likely pushing investors toward uncorrelated crypto assets.

Among managers without crypto exposure, regulatory uncertainty and volatility remain the primary obstacles, although concerns are moderating somewhat after the SEC approved Bitcoin spot ETFs. Custody and accessibility challenges are replacing these risks as the foremost barriers to further adoption.

While regulatory risks persist as the leading threat to investor thinking, fears of an outright ban or stifling policies continue to wane. Combined regulation/ban risks dropped from 63% six months ago to 50% today, despite surprisingly elevated concerns following recent Bitcoin ETF approvals. There is also less unease related to custody and concentration issues.

Lastly, investor fears regarding serious Federal Reserve monetary policy errors have shifted demonstrably toward uncertainty. This aligns with data hinting that the Fed may be accomplishing a soft landing. The number doubting or unsure about Fed mistakes grew notably, while those still outright critical were unchanged. Carefully monitoring unfolding macroeconomic data is likely prudent for crypto fund managers over the coming six months.