Bitcoin: Institutions or individuals, who is benefitting the most?

Over the course of its history, Bitcoin has been largely dominated by retail trading volumes, however, this seemed to change in 2020 as institutions came knocking on the door. Now, over the past 12 months, the accumulation has evened out between individuals and institutions but it hasn’t been limited to only BTC.

Interest in Ethereum and other assets has also increased and a recent study suggested that institutions are still getting used to trading in digital assets.

In a recent study conducted at the University of Hong Kong, it was observed that institutions were lagging in terms of gathering more profits than retail or individual investors. In equity trading, institutional and professional investors have been known to identify and witness better profits but the narrative wasn’t the same with cryptocurrency trading.

According to the report, on a risk-adjusted basis calculation, individual investors were recognized to outperform institutional entries. The risk-adjusted return over the relatively short time period (i.e 70 days) ranged from 0 to 0.3 percent loss for retail, while losses for institutions were between 0.5 and 0.7 percent.

How do individuals and institutions trade in the market?

The report indicated several trading traits between both classes of investors. A majority of retail investors would hold smaller value crypto portfolios. The average portfolio value for these retail individuals was close to $330 and the top 1% of this distribution was also worth only $839. Institutions held close to an average value of $71,302 and their top 1% of the distribution had moderate portfolios of $2.5 million.

However, one of the major reasons that may have affected individual and institutional gains is the lack of diversification. Both the set of investors held less than 4 digital assets on average under their portfolio. The majority of them had Bitcoin, and Ethereum in common, while XRP, and Litecoin made the other popular options.

A lack of a diversified portfolio meant that traders were missing on price swings taking place on potential tokens in the market.

Additionally, the report suggested that institutional investors made erratic decisions in the market when it came to price evaluation.

Note: It is important to understand that the current data is based on only a few exchanges in Asia and it does not incorporate individual and institutional investors from any other region.