Investors lean towards Layer 1 tokens for their crypto portfolio allocations

Sygnum’s Future Finance Report found the Layer 1 sector as the most appealing sector for institutional and professional investors.

  • Layer 1 tokens like Bitcoin and Ethereum continue to capture investors’ attention, but the emergence of competitor chains as new “blue-chip” tokens hints at expanding interest within the sector.
  • Advancements in Layer 2, DeFi, and Web3, though sometimes overshadowed in the broader market, are drawing investor interest, signalling a shift towards token sector diversification within crypto portfolios.

Source: Sygnum Future Finance Report 2023

Over 90 percent of survey respondents have expressed a strong interest in the Layer 1 sector (L1), primarily driven by the appeal of well-established assets like Bitcoin and Ethereum. However, protocols such as Solana and XRP may also be earning their place as maturing assets, while other foundational layers like Avalanche, Cosmos, and TRON, are showing signs of healthy user activity and ecosystem growth. Meanwhile, the rising demand for sector-specific chains like AI-linked Injective, THORChain’s cross-chain decentralised exchange, and Celestia’s blockchain modularity protocol, are demonstrating their ability to address specific industry bottlenecks and user demands.

What is driving Layer 1 growth in 2024?

Bitcoin continues to have strong drivers as ETF inflows are expected to increase over the year, while its platform capabilities through BRC-20 tokens is leading to strong transaction volume growth. The anticipation of the upcoming Bitcoin halving, supporting one of its core value propositions as a store of value asset, will also continue to drive investor interest. Ethereum, the leading smart contract platform, has several upcoming catalysts with the Surge scalability upgrade and potential spot ETF approvals bringing fresh demand for Ether.

The growing demand for block space also puts the spotlight on alternative blockchain designs and high-performance networks, which have allowed them to outperform in terms of speed, reliability, and low transaction fees. This includes Solana’s remarkable performance in 2023, especially as it has now become a favoured platform for the rapidly expanding DEPIN application niche, including AI-linked projects.

Interest and trends beyond Layer 1s 

The Layer 2 sector was of interest to 60 percent of survey respondents, while the demand for scalability and the rise of AI further escalating the need for scaling solutions will continue to unlock new opportunities in this sector. DeFi remains a popular sector, as indicated by 52 percent of respondents, with emerging trends such as real-world asset (RWA) tokenisation, liquid staking and new market segments such as Ethereum re-staking likely to expand sector interest throughout 2024.

It’s encouraging to see interest in a variety of crypto sectors, particularly in Web3 (47 percent), which has performed exceptionally well throughout 2023. The broader Web3 sector appears to offer a number of opportunities as the market rewards improved interoperability solutions. Rising user growth in the DEPIN niche remains strong and the proliferation of AI catalyses demand for the services of numerous protocols in this sector.

Learn more about our Future Finance Report here: Future Finance 2023 – Reports | Sygnum Bank

Learn more about sector trends and drivers here: Q1 2024 Crypto market sector snapshot – Research & Education | Sygnum Bank – Invest in crypto with a regulated Swiss bank 

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