More Institutional Eyes Are Now on Ethereum

  • Institutional interest in Ethereum is growing, says Coinbase’s data.
  • The investors choose Ethereum as a store of value
  • CME and Galaxy Digital launching ETH-related products in February

Last year, crypto established its status as an institutional asset class, says Coinbase in its 2020 review. Although Bitcoin was the undoubtful leader among big investors, the second-largest digital coin also evolved as a store of value.

According to the biggest United States digital asset exchange, the growing number of its institutional clients started to take long positions in Ethereum (ETH) last year.

The move was mainly made due to high returns from Ethereum. The second crypto outpaced Bitcoin and finished the ear with a 487% gain.

As stated in the 2020 review, the assets of Coinbase Prime Broker increased to $90 billion by the end of the past year. Prime Broker is the main gateway through which institutional clients, banks and wealth managers access digital currencies on Coinbase trading platform.

Why Ethereum?

As stated in Coinbase’s report, the most frequent reasons for choosing Ethereum combine its status as a digital commodity, required to power transactions on the network, and the evolving status of store of value:

Today, most of our institutional clients think of Ethereum as a decentralized computing network
that shares Bitcoin’s properties of trustless store and transmission of value, along with more
flexible programmability via smart contracts.

Another reason for growing institutional interest in ETH can be related to the growing number of projects built on the Ethereum network. The DeFi (Decentralized Finance) industry alone increased over 25 times within the past 12 months and now holds more than $25 billion worth of assets under its management.

Moreover, Ethereum is undergoing the most ambitious network upgrade – Ethereum 2.0, which will shift ETH from Proof of Work (PoW) to Proof of Stake (PoS) protocol and involves major improvements on network scalability.

Institutional movements

Last year the stock exchanges around the globe opened their doors for cryptocurrencies. Austrian Wiener Börse, Germany’s Deutsche Börse Xetra, Singapore Exchange (SGX) made Ethereum-related Exchange Traded products (ETP) available for professional traders.

The biggest institutional digital asset manager Grayscale reported an increase in Ethereum-only investors last month. It currently holds over $4 billion worth of assets in its Ethereum Trust ($ETHE), which is the world’s largest Ethereum investment vehicle.

A number of financial institutions announced their interest in Ethereum too. Chicago Mercantile Exchange (CME) is launching Ethereum futures on February 8. And Galaxy Digital, the cryptocurrency investment firm, is planning to start its own Ethereum Fund next month.

On the flipside

  • While Bitcoin is well recognized as “digital gold”, Ethereum still lacks a clear and simple narrative that can be easily understood for wider adoption, says Coinbase.
  • Transactional scalability is the biggest issue for Ethereum. Its major upgrade is expected to make the network faster and more secure.

More volatile than Bitcoin

According to Coinbase’s review, Ethereum has been a more volatile cryptocurrency compared to Bitcoin. Within 2018 alone ETH has lost almost 95% of its value. The volatility can be addressed to a younger age (ETH launched in 2015), smaller market capitalization, and lower understanding of ETH value propositions and future potential says the exchange.

Coinbase accordingly adds that Ethereum has shown strong returns in recent years, despite the price volatility.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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