The former England captain took over from Fenlon earlier this month and saw his team draw 0-0 with St Mirren last Saturday in his first game in charge.
That point in Paisley leaves the Leith side five points adrift of a top-six slot.
But having had two weeks to study his group, Butcher - who resigned from his post at Inverness to move to the capital - says their is plenty of talent at his disposal.
He said: "The players are improving all the time. A lot of them have surprised me by how good they are and the quality that they have got.
"We have got quantity in terms of the numbers but we have also got quality within that. So the signs are good.
"We can see them growing in confidence, especially in how we want them to play and they look like they are capable of coping with that.
"I'm always optimistic. I'm not so much a glass half-full type of person as one who's on his way to the next drink. I was pleased with the work rate the players put in last week against St Mirren but that was a minimum for us. A good friend said to me, 'There is always more'. And I want more and more."
And Butcher says the high quality of the players he is now working with means he may not have to rethink his plans for the January transfer window.
"It's up to the players here to reduce any possible signings or potential incomers," he said. "Their displays can change what happens.
"Yes we would like to bring good quality players into the club, just like we did at Caley Thistle. But I've got a budget to work to and I've got players here who I haven't seen playing to their best yet. If I see potential in the next few weeks then that might have a massive impact on who I bring in and in what positions."
Fenlon stepped down after leading the Hibees to two of their worst ever results - the 7-0 Europa League disaster at home to Malmo in July and the 1-0 League Cup quarter-final loss to administration hit city rivals Hearts last month.
But if Butcher is to enjoy better fortunes than the Irishman, he may have to re-write two other blemishes scrawled into the club's record books.
Saturday will see Hibs travel north to Ross County as they seek to end their 111-year wait for the William Hill Scottish Cup. But Easter Road outfit do not have history on their side, having never beaten the Staggies in six attempts.
Butcher, however, insists the past will have no bearing on the fourth-round clash.
He said: "You can bring out all these records and all these stats but they are just historical facts at the end of the day. They are things from the past.
"The players are not 111 years old and have not played in every year that we haven't won the competition. You can get carried away with the fact we haven't won it for so long and then it becomes a burden.
"It doesn't matter because that history can't affect the game. Neither can the crowd, the stadium or records or form. It does not matter. All that matters is how we play.
"We are just concentrating on the game and how we want to go about our work. It's up to us to create our own little bit of history."
- Sports & Recreation
- St Mirren