Ethereum, the second-largest cryptocurrency by market cap, is on fire these days, consistently recording new all-time highs. The positive news from the European Investment Bank about issuing $121 Million worth of digital bonds on the Ethereum public blockchain was the missing spark to provoke a roaring demand fire.
According to a recent report from Two Prime, a digital assets investment guidance provider, Ethereum has been successful in attracting the attention of institutional investors and corporate treasuries with its vigorous developer community, fast-growing DeFi ecosystem and accessibility of the liquid derivatives market.
“Based on our analysis of ETH’s price performance, derivatives markets, and on-chain data, we believe that ETH has earned a place, alongside BTC, as an institutional-grade investment, store of value, and treasury reserve asset,” Two Prime wrote.
Ethereum price, which is currently trading around $2,900, has gained more than 900% in just the past year.
Despite that, Two Prime still believes Ethereum is “steeply undervalued” compared to Bitcoin which has surpassed $1 trillion in market capitalization. “ETH on the other hand, which began attracting institutional investment in early 2021, has seen its market capitalization grow to reach $275 billion, still just 25% that of BTC,” the report wrote.
Ethereum is a dominant open source technology development project with the power to shape the future of finance. While BTC is still by far the most popular investment choice for newcomers to crypto, ETH is catching on.
Grayscale, the biggest digital assets and cryptocurrency investment management firm in the world, holds more than 3.2 million ETH, accountable for about 3% of the total supply. This significantly reduces the total supply of circulating Ethereum and creates a price lift pressure.
We are currently witnessing the use of out-of-the-money (OOTM) put options to hedge long-spot positions in the crypto markets, a sign that institutional investors are penetrating the market. Options volume (the number of contracts traded daily) and option open interest (the number of active contracts) have also increased which further reflects the increasing institutional adoption of Ethereum.
“The growth of both futures and option markets have moved beyond mere retail speculation as institutional money managers have moved in to start hedging net long portfolios against outsized volatility events,” Two Prime wrote. The report also mentions that while the total open interest in ETH in April of 2020 was only $365 million, it grew to more than 20x reaching $7.5 billion by April 2021.