New store of value: institutional investors get into Ethereum

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In addition to Bitcoin, Ethereum is increasingly establishing itself as a popular asset class among professional investors. The “big ones” are gradually recognizing the value storage function of the second largest cryptocurrency.

The crypto investor base has clearly differentiated over the past few years

While in the first few years mostly small investors steered the fortunes of the crypto market, this changed fundamentally in the last year at the latest. So far, Bitcoin in particular has benefited from the fact that institutional investors, and with them “big money”, are increasingly infiltrating the market for digital assets. But in the slipstream of the largest cryptocurrency, Ethereum in particular is increasingly gaining favor with major investors.

This is the result of the annual report of the crypto exchange Coinbase published on January 22nd . The report expands the investment strategies of institutional clients in 2020 and gives a well-founded insight into the development of the DeFi market and crypto-relevant regulations. With regard to Ethereum, the most notable thesis is that the second largest cryptocurrency is increasingly being used as a store of value.

Ethereum performance overtakes Bitcoin

The move towards Ethereum can be explained solely against the background of the performance. In a direct comparison, the annualized return of Ethereum even dwarfs that of Bitcoin. While Ethereum has an annual plus of 487 percent, Bitcoin has „only“ increased by 321 percent. In 2020, market capitalization even increased by over 500 percent from 14 to 85 billion US dollars and with it the market dominance from 8 to 16 percent.

So it is not surprising that “a growing number (institutional customers) also took positions in Ethereum”. The understanding of the network effects of Ethereum has changed fundamentally in recent years. Institutional investors have learned to understand “the potential benefits of applications built on top of Ethereum”. As a catalyst for this, the report cites the booming development of decentralized finance (DeFi) in 2020.

The argument in favor of owning Ethereum that we hear most from our customers is a combination of i) its evolving potential as a store of value and ii) its status as a digital asset needed for transactions on the network.

The constant integration of Ethereum in DeFi applications is therefore evident in the increased transaction throughput. As can be seen from the graphic below, the number of daily transactions has increased significantly since the beginning of 2020. As a result, the Ethereum network repeatedly operates at the edge of its performance capacity.