Ether’s recent rally to all-time highs seems to be driven in part by institutional investors who have stacked up in Bitcoin for their digital gold narrative in 2020.
According to Coinbase’s annual report for 2020, more and more institutional investors see ether as a store of value. The crypto exchange noted that “a growing number” of its institutional clients have taken positions in Ether, the home currency of the Ethereum network, due to their strong position in returns. These customers mostly bought Bitcoin in 2020.
“The case for owning Ethereum [ether] We hear most often from our customers a combination of first the evolving potential as a store of value and second the status as a digital asset, which is necessary for the processing of transactions in its network, ”the report says.
As industry leaders such as Coinbase and Gemini continue to be optimistic about the airwaves, analysts and traders say more and more large investors are also investigating the Decentralized Finance (DeFi) subsector.
“I think the more adventurous institutions are exploring Ethereum and DeFi after looking into Bitcoin,” Arthur Cheong, founder and portfolio manager of DeFi-focused crypto fund DeFiance Capital, told CoinDesk.
“Just like taking part in MicroStrategy’s $ 650 million senior convertible bond offering was basically a near-free call option for Bitcoin last year, Ethereum long-running is a way to get in indirectly with DeFi protocols Get in touch, “said Denis Vinokourov, Research Director at Digital Asset Prime Broker Bequant. “Not everyone is happy with the risks still associated with DeFi, but the hypergrowth of these projects increases activity on the Ethereum network and thus supports capital growth.”
In addition to the thesis that institutional investors are increasingly interested in Ether, the CME announced in December that it would launch Ether futures contracts next month. An ether-based derivative product on one of the world’s largest regulated futures exchanges for institutional customers offers customers the opportunity to hedge their spot positions, reduce the overall risk of an investment in ether and take speculative positions.
Read more: Big investors piled airwaves as the price rose to hit record highs
CME’s new Ether Futures contracts could also be a reason for the Grayscale Ethereum Trust’s premium to decline to the underlying value. The price gap recently dropped to a record low, according to data from on-chain data website Skew.
“The introduction of CME futures will allow the institutional masses to structure base games for those that have been so common in Bitcoin,” Vinokourov said. “This competition, coupled with the fact that an exchange traded fund (ETF) based on digital assets seems more plausible given the growing institutional appetite, may continue to suppress rewards for grayscale products.”
Grayscale is a subsidiary of the Digital Currency Group, the parent company of CoinDesk.
While there are plenty of indications that major ether investors have amassed ether and helped push cryptocurrency to its new all-time high this week, analysts and traders who spoke to CoinDesk are leading the rally largely on renewed demand for crypto -Natives back.
“The Ether rally is more organic and has been driven more by the crypto industry than the Bitcoin movement in recent months,” Chad Steinglass, head of trading at the crypto trading platform CrossTower, told CoinDesk. “There are a lot of crypto-specific traders out there dealing with the Ether / Bitcoin ratio and shifting allocations from Bitcoin to Ether as Bitcoin has cooled recently.”
The use of Ethereum 2.0 is another factor that has fueled these crypto natives’ appetites for holding ether due to the rewards they receive in the form of annualized interest in their holdings.
Johannes Schmitt, director of banking and payments at Kraken, told CoinDesk that more than 380,000 ethers have been deposited by customers of the crypto exchange since December, which declines whether “the use of Ethereum 2.0 is determined by private customers or institutional customers “Which reflects” a growth “awareness in the unique benefits that underpin the ether, he said.