- Coinbase released a report earlier this month with an interesting finding: In fact, the exchange’s institutional clients said that Bitcoin’s evolving role as a store of value was an important part of their reason to invest in it. However, Coinbase also noted that the same group of investors is starting to see another large-volume asset as a possible store of value: Ether (ETH), the local asset of the Ethereum network.
Coinbase released a report earlier this month with an interesting finding: In fact, the exchange’s institutional clients said that Bitcoin’s evolving role as a store of value was an important part of their reason to invest in it. However, Coinbase also noted that the same group of investors is starting to see another large-volume asset as a possible store of value: Ether (ETH), the local asset of the Ethereum network.
“While our corporate customers mainly bought Bitcoin in 2020, an increasing number of people took positions in Ethereum, the second largest crypto asset by market value,” the report said.
“Ethereum performed well against the USD in 2020 and closed the year at $ 745, up 487%, surpassing Bitcoin.” Since then, the price of ETH has risen further: at the time of writing, the price of ETH was ~ 1,275 dollars; Earlier in the year, ETH spiked as high as $ 1,470. According to data from Messar.io, ETH has risen more than 75 percent since the beginning of the year, while BTC’s price is just under 6 percent.
Could institutional investors be the source of some of these gains? And what if institutional investors really see Ether as a store of value asset? And if so, what are the consequences this might have for the Ethereum network and the DeFi domain as a whole?
BTC is fundamentally different from ETH
Let’s go back for a moment: While both Bitcoin (BTC) and Ether are perceived by some investors as a store of value, there are some very important differences between the two assets. For example, the value of Bitcoin is its functionality; In the previous days of Bitcoin, Bitcoin was discussed as a transaction network – a “digital currency”. However, as the network grew, scalability issues caused the network to be seen as a kind of “digital gold”: a store of value.
Ether, on the other hand, has versatile functionality. Sure, ETH tokens have value, but tokens are also used in practical ways on the Ethereum network. While other tokens (called ERC20 tokens) are also launched on the Ethereum network, ETH is the currency in which transaction fees on the network must be paid. Hence, ETH is the “facilitator” of the network: the currency that allows transactions, smart contracts, and decentralized applications (dApps) to run.
The growth of the DeFi ecosystem is driving Ether up
ETH does not have a fixed limit. The price of ETH may be more directly related to the service of processing transactions used in many applications, including a number of decentralized finance (DeFi) dApps.
However, the DeFi ecosystem is still in its infancy: [DeFi] is a new financial ‘wild west’ that is largely happening in Ethereum and could lead to a similar new ‘digital gold rush’ according to some experts. Some liken this industry to the ICO boom at the end of 2017.
However, unlike the ICO era, analysts see a lot more potential in many DeFi projects to continue to grow over the years.
“If ETH grows, so does the price of tokens in the Ethereum ecosystem.”
Thus, although Ether is not a store of value in the same way as Bitcoin, ETH has some kind of correlated value relationship with the decentralized financial ecosystem. As the number of applications built on the Ethereum network continues to increase, so does the amount of capital flowing through this ecosystem. Moreover, the processes take place on the network, the more Ether is used.
Transition to Eth2.0
While this growth of Ethereum’s DeFi ecosystem has resulted in slow transaction speeds and high transaction fees repeatedly, the team responsible for developing the technology behind the Ethereum network recently led the Ethereum community to Ethereum in the first step. It is planned to solve some of the network’s scalability issues. This could have significant implications for the future of the Ethereum network and the price of Ether. With the transition to Eth2.0, it will be possible to process thousands of transactions per second with very little energy consumption, thanks to a mechanism known as sharding and transition to proof-of-stake, without going into very complex technical details.
As a result, Ether is not a store of value similar to Bitcoin. However, this does not mean that it is not valuable and will not continue to grow in the long run.
Of course it creates positive prospects for investors in terms of possible earnings. There is currently no discussion in the crypto community about ‘flippening’, a term used to describe the possibility of Ethereum overtaking Bitcoin as the leading cryptocurrency. But the truth remains the same, Ethereum is stronger than ever now. “