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Ether, the world’s second-biggest crypto by market cap, outperformed Bitcoin (BTC) this month as it almost doubled its price. It now appears that ETH’s rally, which saw the token set a new all-time high recently, is partly driven by increasing interest from institutional investors.
An increasing number of institutional investors now view Ether as a store of value, according to Cointelegraph. “The case for owning ethereum [ether] we hear most frequently from our clients is a combination of, first, its evolving potential as a store of value and, second, its status as a digital commodity that is required to power transactions on its network,” crypto exchange Coinbase wrote on its annual review for 2020.
While institutional investors predominantly invested in Bitcoin last year, the exchange noted an increase in the number of clients who were investing in Ether as well. “While our institutional clients predominantly bought Bitcoin in 2020, a growing number also took positions in Ethereum, the second-largest crypto asset by market capitalization,” Coinbase’s report said. “Ethereum performed well against USD in 2020, outpacing Bitcoin to finish the year up 487% at $745.”
Traders and analysts explained that investors are getting more bullish on Ether as interest in decentralized finance (DeFi) started to pick up. “I think the more adventurous institutions are exploring ethereum and DeFi after they looked at bitcoin,” Arthur Cheong said. Cheong is the founder and portfolio manager of DeFiance Capital, a DeFi-focused crypto fund.
“Just like taking part in MicroStrategy’s $650 million convertible senior note offering last year was basically getting an almost-free call option on bitcoin, going long on ethereum is a way to get indirect exposure to DeFi protocols,” Bequant head of research Bequant, Denis Vinokourov said. He added that while there are risks associated with DeFi, the rapid growth of the sector meant increasing activity on the Ethereum network and the potential appreciation of ETH.
Meanwhile, Bitcoin’s recent correction might also be one of the reasons for Ether’s rise. “The ether rally is more organic, and driven more from within the crypto industry than the bitcoin move over the past several months,” CrossTower head of trading Chad Steinglass said. “There are many crypto specific traders that are looking at the ether/bitcoin ratio and are moving allocations from bitcoin to ether as bitcoin has cooled off recently.”
