- The institutional allocation in cryptocurrencies points to greater upside potential for Ethereum allocation.
- The ratios for the on-chain value of cryptocurrencies reveal that Ethereum and some altcoins are undervalued compared to Bitcoin.
- The SEC’s lawsuit against Ripple has also changed the current altcoin landscape.
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Bitcoin has risen to new highs thanks to renewed institutional interest. Now, analysis suggests that Ethereum could be next to enjoy the same large institutional inflows.
Grayscale Data Reveals Altcoin Opportunity
Grayscale is the largest institutional cryptocurrency fund globally, with $19 billion in assets under management (AUM). Unpacking this data reveals that this year’s Bitcoin bull run has been driven by investments from hedge funds, listed companies, and other wealthy entities.
The allocation percentages of Bitcoin and Ethereum on Grayscale also suggest that institutions lag on ETH allocation.
$ETH is undervalued in terms of institutional buying.
Institutional investors would eventually consider $ETH for their portfolio next to Bitcoin.
27% gap here. They will buy more $ETH.
— Ki Young Ju 주기영 (@ki_young_ju) December 29, 2020
Ki Young Ju, the CEO of Crypto Quant, who shared the analysis, noted that it was a “dumb calculation.”
For one, if extended to other cryptocurrencies, it would reveal a higher discrepancy with Bitcoin valuation. A similar rudimentary comparison of their on-chain values also reveals an undervaluation of Ethereum, along with other altcoins.
The ratio of realized capitalization of Bitcoin to Ethereum is 4.5:1, meaning the total investment in Bitcoin is 4.5 times that of Ethereum. In contrast, the ratio of their market capitalization is around 6. Hence, it looks like the price of Ethereum has some catching up to do.
The same is true for Litecoin and greater margins—the ratio of BTC: LTC realized capitalization is 30:1, while the ratio of their market capitalization is 58:1.
However, only Bitcoin and Ethereum stand out on the regulatory front.
Ethereum Next on Institutional List
SEC’s clearance to Ethereum as “not a security” with the launch of CME futures due in February next year has instilled confidence among investors about ETH.
If institutions begin adding Ethereum to their portfolios based on total market capitalization, Grayscale’s Ethereum fund should see larger inflows.
For instance, the Bitwise 10 Crypto Index Fund uses a weighted-market capitalization technique to balance their crypto index. Currently, the allocation ratio of Bitcoin to Ethereum in Bitwise’s index is 6.46:1.
The analysis based on realized capitalization and institutional allocation points to greater potential in altcoins. Young Ju added,
“If Grayscale clients rebalance their portfolio based on the market cap, ETH price would be $903. (Current price: $714).”
However, many of these come with regulatory risks—like SEC’s lawsuit against Ripple, which saw Bitwise and others liquidate its XRP position. The top two currencies, however, are currently exempt from such risks in the U.S.
Disclosure: This author held Bitcoin and Ethereum at the time of publication.
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