The upcoming Ethereum merge to change the consensus layer from proof-of-work to proof-of-stake is likely to be a critical factor in accelerating Ethereum’s ascent to institutional-grade investment, a report by Bloomberg Intelligence suggests.
Furthermore, the report suggests that Ethereum’s growth will depend on its pedigree as a social and economic tool. There are promising signs since the total ETH locked in smart contracts has increased by 1.4% over three years. While NFTs experienced a temporary lull, BI believes that they have the potential to displace stablecoin and decentralized finance activity.
Broadening use-cases have strengthened Ethereum activity on the blockchain compared with the previous bear market. Both stablecoins and decentralized have been challenged by the liquidity crunch at some major crypto companies that have either filed for bankruptcy or halted withdrawals.
In mid-July, fund manager CoinShares released a report saying that Ether inflows were on a three-week streak, with $7.6 million going to institutional investors. The Grayscale Ethereum Trust offers institutional investors exposure to Ethereum. The top institutional holders of the Trust are Rothschild Investment Corp, Weatherbie Capital LLC, and Rye Brook Capital LLC.
Last month, Ethereum co-founder Vitalik Buterin fired back at Ethereum critics that falsely claimed that changes to Ethereum’s code are decided using a governance vote.
Ethereum beats bitcoin on key metrics
The report suggests that Ethereum could be mispriced, considering the recovery since a peak on May 21, 2022.
It has transcended the performance of bitcoin in three vital on-chain metrics: active users, non-zero balance addresses, and transactions.
Bitcoin has been hammered by Federal Reserve rate hikes and will likely continue to follow stocks down if the rate hikes continue. However, it is still five times above a March 2020 low at the beginning of Aug. 2022.
Active Ethereum addresses with non-zero balances are at an all-time high. Active addresses have mostly been flat compared to a year ago but are up 113% compared to three years ago, beating bitcoin. The number of active bitcoin addresses decreased by 30% in the same period. On July 26, 2022, the 7-day moving average of active users increased by 46% or 180000 in one month. Ethereum transfer volumes are down 7% despite a 29% price drop.
Multi-asset tokenization is a distinct possibility
According to the report, crypto assets appear to be heading down the path of futures and exchange-traded funds, having done away with the heady 2020 and 2021 days.
Similar to how futures contracts provide exposure to assets without needing the investor to own the asset, little stops the tokenization of all kinds of assets, except perhaps technical and regulatory hurdles. The report opines that the fact that Tether and USDC are made possible by Ethereum testifies to the value of blockchain technology.
By the end of 2022, Ethereum could offer staking yields of 6-9%, with a deflationary issuance pattern, the report adds, provided the merge happens within that timeframe.