The recent surge in Ether prices could be related to the intensifying popularity of Defi, the CME’s soon to come ether futures contracts and a surge in institutional investors.
Ethereum is one of the big crypto currencies, second to Bitcoin in popularity. It has recently seen an upswing in price, presently at $1,640, from the $1,284.38 shown below on Monday. How is a 24 hour high nearing $1,700 explained? This week’s hockey stick is also significant from a volatility standpoint because the past month saw strong fluctuations around the $1,300 mark. With the Bitcoin surge, there was already a rippling interest in other crypto assets like Ether, and many were expecting a rise in the next best thing especially considering the price tag at the time was closer to $600 for Ether.
Ether put up quite the fight against BTC this year and while BTC got all the media glory because of the large price tag, Ether performed very well in comparison:
Recent developments in Ethereum’s success have also been accompanied by increasing average transaction fees bursting the $20 mark as noted below. This increase in transaction costs reflects the strongly growing demand for ERC-20 based tokens, particularly stablecoins and the DeFi sector more generally. Tokens like uniswap (UNI) and aave (AAVE) have boosted DeFi’s total market capitalization 16%, and ethereum miners are the net gainers of a spike in fees as the industry earned about $830 million in ether last month. For more information of decentralized finance, read our next article.
CME’s incoming ether futures contracts:
The Chicago Mercantile Exchange (CME) had announced in December that it would launch a futures contract on ether, the second largest crypto asset by market size with a February 8th listing date. Mind you that it took three more years than bitcoin for Ether to gain position on the exchange so this is a big day for the crypto asset to continue proving itself as a store of value.
Each contract will have 50 units of ether and the derivative product will be open to trade between 5pm and 4pm from Sunday to Friday. The CME believes that Ether could replicate the success that Bitcoin options saw. The CME has in mind the institutionalization of crypto assets which could help develop the crypto space, and offer risk management tools for further integration into the financial system. Considering the impending date, this could clearly be one of the reasons for a soaring demand in ETH.
Growing institutional popularity:
It appears the growing popularity of bitcoin has spilled over from one crypto to the next. Ether’s all time high could be linked to institutional buyers piling into the digital gold narrative. According to Coinbase’s annual review for 2020, more institutional investors see Ether as a store of value. Coinbase has identified a growing number of such clients taking positions in Ether for reasons beyond a store of value, namely: returns. These were said to be second time buyers, first time purchases being done in bitcoin assets.
DeFi is also grabbing increasing amounts of interest which pushes up the demand for ether as the two are interlinked, and going long on Ethereum is a way for investors to get indirect exposure to more DeFi protocols. Not all investors are comfortable with the risks associated with DeFi. However, the hyper growth of such assets has boosted the activity and growth of capital of Ether enough so to keep interest running high. As previously mentioned, CME’s futures offering is helping ease the risk tolerance of more and more investors which again attracts more capital to the space. Ether value has also been aided by the cooling off of Bitcoin. With the Ether/Bitcoin ratio growing after a stabilization of BTC last weeks, demand for Ether went up.
Announced today, Terraform Labs has launched a $10 million fund, Terraform Capital, to push integration of its dollar pegged stable coin (UST) and its governance token LUNA. The main objective of the fund is to do so on Ethereum’s DeFi stack. This basically means more building can be done on Ethereum’s blockchain, and thus more production of the asset and an increase in price.
In other Ethereum related news, a demonic digital art piece sold for 420 ETH, or $650,000 at the time of purchase on Wednesday. The collectible non-fungible token (NFT) based artwork is known as a hashmask. The hashmask platform from Switzerland’s Suum Cuique Labs hosts a collection of 16,384 unique such pieces.