Institutional investors are showing strong interest in cryptocurrencies, but their focus remains firmly on the market leaders, bitcoin (BTC-USD) and ethereum (ETH-USD). While smaller altcoins continue to capture headlines in the retail space, their adoption by large investment managers has been slow.
On Yahoo Finance Future Focus, James Butterfill, head of research at CoinShares, explained why most institutional portfolios are still dominated by bitcoin and ethereum, and what might change in the years ahead.
“Not yet, I’d say,” Butterfill told Yahoo Finance UK when asked about institutional exposure to altcoins.
He explained that bitcoin accounts for roughly 90% of all exchange-traded fund (ETF) inflows and assets, with ethereum taking most of the remainder. Altcoins, by contrast, represent only 2 or 3%
Altcoins are cryptocurrencies other than bitcoin (BTC-USD), including Solana (SOL-USD) and XRP (XRP-GBP), and thousands of smaller digital tokens that serve various purposes across the crypto ecosystem.
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“At the moment, I think it’s a big ask for many institutional investors to start looking at many of these much smaller altcoins,” Butterfill said. “They’re only just getting used to bitcoin as a store of value and its position in the portfolio, and now they’re just starting to divert gaze towards ethereum (ETH-USD), which has been incredibly popular this year.”
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This popularity is reflected in inflows — ethereum (ETH-USD) has attracted $12bn so far this year, compared to $5bn last year, Butterfill noted.
The surge in ethereum interest is partly due to its technical evolution. “There was some scepticism of ethereum about three or four years ago, when we had the merge,” Butterfill said, referring to ethereum’s shift from proof-of-work to proof-of-stake validation.
Investors initially questioned whether the transition would succeed, and concerns over staking yields and transaction speed lingered for years. But with recent upgrades and clearer roadmaps, Butterfill said confidence is growing.
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“The roadmap for ethereum (ETH-USD) upgrades is a lot better now, and they’re much better at marketing, like solana (SOL-USD),” he explained.
“Plus, you have that backing of the stablecoin and the GENIUS Act in the US now; most of stablecoins operate around 60% or 70% on ethereum. That’s why we’ve seen all this hype and the price appreciation.”
When asked about solana, Butterfill acknowledged its strong price performance but questioned its sustainability.
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“80% of volumes are on memecoins in solana, so that is very quick to transact and very cheap,” he said. But Ethereum, he argued, offers a more mature decentralised finance ecosystem, including stablecoins and real-world assets.
The numbers tell a similar story — ethereum has 7,000 active developers, compared to just 1,000 for solana, giving it a clear edge in potential innovation and complex applications, Butterfill added.
Looking ahead, Butterfill sees stablecoins and real-world assets on-chain as the areas with the most growth potential for institutional adoption.
US treasury secretary Scott Bessent said he believes stablecoins would be a $7tn business in five years. So it’s currently a $280bn business,” he said. While that forecast might be optimistic, it highlights the growth potential.
Real-world assets, such as tokenised US treasuries and other debt instruments on-chain, have also seen a rapid rise, from $8bn at the start of the year to $30bn today. Big players like BlackRock (BLK) are leading the charge, creating digital equivalents of traditional assets that can settle instantly.
Decentralised finance (DeFi) is also gaining traction, particularly on ethereum, though Butterfill cautions that regulatory and “know your customer” (KYC) hurdles remain a barrier for institutional investors.
Read more: Why the Bank of England’s new stance on stablecoins could be a big deal
“You don’t know who you’re lending to, and that is a challenge for institutions,” he said. Still, he added that complex strategies on DeFi platforms can sometimes generate annualised yields up to 50%, making the space increasingly hard to ignore.
For now, bitcoin (BTC-USD) and ethereum (ETH-USD) dominate institutional portfolios. But as infrastructure, regulation, and technical upgrades improve, Butterfill expects stablecoins, real-world assets, and DeFi platforms to become the next frontier for major investors.
“It’s very much a bitcoin and ethereum story for now,” he concluded, “but the next wave could be much more interesting.”
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