Ethereum, the crypto-market’s biggest altcoin, has been one of the year’s best performers, with ETH surging by almost 400% on the price charts. However, while the scale of its price appreciation, perhaps understandably, has grabbed the most eyeballs, what has gone under the radar is the surge in institutional interest Ethereum has been seeing.
CME sees green
Consider this – Just over $23M worth of new contracts were traded within the first 7 days of the CME launching Ethereum Futures. On the contrary, according to a recent report by OKEx Insights, “partial data for the week ending April 25 shows weekly volumes hitting an all-time high of $353 million — over 166% more than the $132.57 million high from the week prior.”
What’s more, CME Ether Futures‘ OI has risen at a similar pace too, with the aforementioned report finding that,
“During their first month of trading, ETH Futures had an average Open Interest of $61.17 million. The figures for March showed a significant increase in activity, with the average Open Interest rising to a high of $101.67 million.”
In fact, as of 21 April, the figures for the same had risen to $205.6 million, a reflection of the scale of institutional money that has found its way into the Ethereum market over the past few months.
What has contributed to institutional interest in Ethereum growing like it has this year? Well, quite a few factors have come into play here. However, before touching upon each of them, it’s worth highlighting that CME’s launch of Ether Futures and its success isn’t the only instrument to measure the scale of institutional interest in ETH.
December 2020, for instance, saw 3iQ listing The Ether Fund on the Toronto Stock exchange. A few months after that, CoinShares’ Physical Ethereum went live, following which, Galaxy Digital raised $32M to launch two separate Ethereum funds.
The uptick in ETH-based exchange-traded products, like the aforementioned figures for CME Ether Futures, is evidence of Ethereum’s emergence as an increasingly attractive investment option for institutional investors.
Now, back to the aforementioned question – What has driven institutional interest in Ethereum over the past year?
Why institutions love Ethereum now
According to OKEx Insights, one of the foremost factors behind the same has been the normalization of cryptocurrency investing in the mainstream. This, the report argued, was a by-product of the entry of MicroStrategy, MassMutual, and Tesla into the cryptocurrency space, with each of these firms’ actions legitimizing a sector that has long struggled to shake off its reputation on Wall Street.
Now, this is something Bitcoin has struggled with as well. However, unlike Ethereum, BTC is a “finished product,” whereas Ethereum is still in the middle of a long upgrade. The fact that institutions trust Ethereum so early into its roadmap is a big deal, and holds well for its fortunes in the future.
What else? Ethereum’s growing use cases are another factor too, with the growth of decentralized finance doing the trick for the past year now. Thanks to the same, network usage have gone through the roof, with the same fueling demand for ETH too. According to Rick Delaney,
“… many of those speculating on the ETH price do so with the expectation that future network usage will increase the value of their investment.”
Finally, one can argue that the transition to Ethereum 2.0 is not only driving price appreciation but is also driving institutional interest in the cryptocurrency. While the implementation of EIP-1559 is expected to “serve as a positive feedback loop for Ether’s price,” the fact that quite a few staking services catering exclusively to accredited institutional investors are being launched is a sign of how the latest ecosystem-centric updates are being taken in their stride by institutions.
Too good to last?
Now, is this set to be the prevailing trend? Will institutional interest in Ethereum continue to hike with every passing week?
Well, it can be argued that the lengthy timeline associated with Ethereum’s upgrades “may temporarily limit institutional appetites,” with ETH, at the moment, more of a “speculative play” than BTC. This, and the fact that other blockchain networks have emerged lately to challenge Ethereum suggests that the future might be more uncertain than expected.