Coin Metrics: Institutions are the main drivers of this ETH rally

Ether reached an all-time high in price this past week, climbing from below $2,100 two weeks ago to above $3,300. While Ether broke its own dollar-denominated record, it still hasn’t broken its Bitcoin-denominated record.

Last month the bitcoin price reached 3.2 times its peak price in the previous bull market in December 2017. But so far Ether’s highest price is still 2.4 times its January 2018 price.

Coin Metrics: Institutions are the main drivers of this ETH rally

Ether and Bitcoin in USD

Ether’s success in 2021 is largely driven by retail investors. the explosive growth of NFT has brought new users and mainstream attention to Ether. As more investors enter this ecosystem, DeFi’s total value lock continues to reach new heights.

On-chain data provides evidence of Ether’s retail growth. Since the beginning of the year, the number of Ether addresses holding relatively small amounts (between 0.01 and 1 Ether) has increased by approximately 3.8 million, to a total of over 13.6 million. In total, 3.8 million addresses contained 0.01-1 Ether on May 4, 2018.

Coin Metrics: Institutions are the main drivers of this ETH rally

Owning 0.01-1 ethereum addresses

Ether’s 2017-2018 bull cycle was similarly driven by retail investors. But there is still a huge difference between the last cycle and the current one: the entry of institutional investors. Institutional investors have been stepping into the cryptocurrency space since 2020 at an unprecedented pace, leading to another price peak in 2021.

The Entry of Institutions

While institutional investors have been pouring into bitcoin, the pace of entry into ethereum has been slightly slower. But there are signs that ethereum is starting to attract institutional investors as we head into the summer.

Chicago Mercantile Exchange (CME) futures are one of the main ways institutional investors are getting exposure to cryptocurrency. Unlike most cryptocurrency exchanges, the CME is regulated in the U.S. and has a long history with traditional derivatives, making it a trusted institutional exchange.

CME first launched BTC futures in December 2017. However, they only added ETH futures in February 2021. While CME Ether futures trading volume was relatively low in March, it soared in April, reaching a high of over $500 million per day.

Coin Metrics: Institutions are the main drivers of this ETH rally

Ether futures trading volume on the ChiNext

Although CME’s ethereum futures trading volume is growing, it is still significantly lower than BTC. cME BTC futures have touched a daily high of over $ 6B so far in 2021, but BTC trading volume peaked in late Feb. ETH trading volume only started hitting new highs in April and still seems to be increasing.

Coin Metrics: Institutions are the main drivers of this ETH rally

Bitcoin futures trading volume on the ChiNext

While institutions are still not significantly involved in Ether, it will soon be attractive enough to institutions.

Improving the Economic Structure of Ether

Until now, some institutions have been concerned about the economic structure of Ether and the high inflation rate compared to Bitcoin. But with the upcoming release of the Ether Improvement Proposal (EIP) 1559 explains some of these concerns.

EIP-1559 will be released in July as part of Ether’s upcoming London hard fork. In addition to improving ETH gas UX, EIP-1559 will consume a portion of ETH transaction fees. This will permanently remove a portion of the supply from circulation and reduce the net daily issuance of Ether.

For example, the chart below shows what the net daily issuance of ETH would look like if EIP-1559 resulted in 75% of the fees being consumed. This is a historical estimate, calculated by subtracting 75% of the daily fee from the daily volume of ETH issued – it is not possible to know exactly what the consumption fee will be compared to the percentage of the fee that will be consumed when EIP-1559 goes live. However, it suggests that the volume of issuance may decrease significantly, and may even become negative during periods of extremely high fees.

Coin Metrics: Institutions are the main drivers of this ETH rally

With the projected issuance of EIP-1559

This will result in an estimated annual inflation rate (average 30 days) of between 1-2%. This is only an estimate and it will fluctuate depending on the number of daily transaction fees and the percentage consumed. But overall, the inflation rate for Ether should be significantly lower.

Coin Metrics: Institutions are the main drivers of this ETH rally

with the EIP-1559 projected inflation rate

In addition to EIP-1559, other improvements are in the works. The introduction of the Ether 2.0 PoS conversion will effectively turn Ether into an asset with revenue. 4.1 million Ether is already locked in the Ether 2.0 collateral contract. As Coinbase and other companies introduce Ether collateral, the amount of Ether being pledged will increase.

Layer 2 scalability solutions have also been introduced. aave recently launched an integration with Polygon (MATIC) which already has over $ 2B in deposits. Solutions including Immutable X are helping the NFT platform scale, which will help further attract retail investors.

If retail investors continue to trade Ether and more institutions start to enter it, then Ether could become the second largest cryptocurrency by market cap in the second half of 2021.

Network Data Insights

Abstract

Coin Metrics: Institutions are the main drivers of this ETH rally

Ether market cap grew 19.7 percent week-over-week as the price surpassed $3,000 for the first time. But ETH active addresses declined after hitting an all-time high of over 900,000 last week.

BTC’s counting power grew 8 percent per week and recovered after dropping in mid-April due to a power outage in the Northwest.

Network Highlights

Ether transaction fees have spiked to an all-time high in 2021 as DeFi continues to grow and there is unprecedented demand for block space. However, while network usage remains high, the average Ether gas price in May has fallen to its lowest level since December 2020.

On April 22, Ether miners raised the gas limit to about 15 million per block. This means there is more space available per block, which has helped lower the average gas price.

Coin Metrics: Institutions are the main drivers of this ETH rally

Comparison of average gas price and gas cap

On April 22, the average volume per block reached 246, which is the highest level since January 2018. Since then, the average trade volume has remained above 213, which is the highest level in the past two years.

Coin Metrics: Institutions are the main drivers of this ETH rally

Comparison of average transaction volume and gas cap for ethereum blocks

Despite the record high price of Ether, the average transaction fee in USD has dropped below $10.

Coin Metrics: Institutions are the main drivers of this ETH rally

Comparison of the average transaction fee and gas cap for ethereum

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/coin-metrics-institutions-are-the-main-drivers-of-this-eth-rally/
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