On Tuesday (May 4), OKEx Academy, the educational arm of crypto exchange OKEx, published a research report — using data from leading digital asset data provider CryptoCompare — that takes a closer look at institutional interest in Ethereum (ETH).
This original research report was written by OKEx Insights– the part of OKEx Academy that provides Market analyses, in-depth features, original research, and curated news from crypto professionals — using data provided by the research team at CryptoCompare.
Explosive Growth in CME ETH Futures
On February 8, CME Group announced that it had launched its much-anticipated Ether (ETH) futures.
Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products, said at the time:
“As institutional demand for transparent, exchange-listed crypto derivatives continues to increase, we are pleased to launch our new Ether futures contract. The addition of Ether, along with our liquid Bitcoin futures and options, will create new opportunities for a broad array of clients, whether they are looking to hedge ether positions in the spot market or gain exposure to this cryptocurrency on a regulated derivatives marketplace.“
OKEx’s report says:
“Data provided by CryptoCompare shows contracts totaling $23.64 million traded during the first week of CME ETH futures. By the week ending Feb. 28, however, volume had increased more than threefold to reach $72.82 million.
“After dropping back significantly over the following few weeks, volume hit a new high of $73.96 million on the week ending April 11, and the subsequent seven-day period saw the volume surpass $132.57 million. The final data provided for this report on April 21, however, shows an even more significant increase in activity for the week ending April 25. Despite the absence of data for around half the week, volume still crossed $350 million.“
It also points out that “although the ETH futures offered by cryptocurrency exchanges like OKEx still dominate the overall market volume, the CME’s share is growing.”
As of April 21, CryptoCompare’s data “shows that CME’s open interest accounted for 3.7% of all ETH futures, as it stood at $205.6 million.” These figures “clearly demonstrate the increasing influence of institutional money in the market.”
Growth in ETH Price Since CME Group Announced Launch Date for Its ETH Futures
On 16 December 2020, CME Group announced that it planned to launch Ether futures starting on 8 February 2021 (“pending regulatory review”). On that day, ETH was trading around $590.
The OKEx report notes that “at the beginning of February, just days before the CME contracts went live, ETH’s price took out its early 2018 all-time high of around $1,430 and that “by February 20, the second-largest cryptocurrency had risen to a local top just short of $2,000.”
It went on to add:
“ETH traded below this high throughout March, however, only breaking above it again on April 2. It then continued its climb, reaching a new all-time high above $2,530 on April 16. Following a volatile week that took the price down to just above $2,000, ETH hit new highs once again. The surging interest in ETH during this time was also reflected in the CME ETH futures volume and open interest.“
Increasing Institutional Interest in Ethereum
According to the OKEx report, increases in both volume and open interest for the CME’s ETH futures product suggests growing demand from institutional investors.
Also, the number of ETH exchange-traded products (ETPs) and ETH exchange-traded funds (ETFs) currently trading in Europe and North America, provide further evidence that Ethereum is “becoming increasingly appealing to institutions.”
The report says:
“In December last year, 3iQ listed The Ether Fund on the Toronto Stock Exchange. Similarly, CoinShares’ own exchange-traded product, CoinShares Physical Ethereum, went live on Feb. 24, while Galaxy Digital raised $32 million to launch two Ethereum funds at the beginning of March.“
OKEx says says that as the ETH price has drastically increased during the past few months, the popularity of CME’s ETH futures has gone up. OKEx believes there are two reasons for this:
“Firstly, the product allows traders who might otherwise struggle to get exposure due to compliance issues a means to speculate on ETH’s price performance at a familiar and trusted trading venue… Perhaps more importantly, however, futures contracts enable traders to hedge their exposure to ETH’s spot price.“
Main Drivers of Institutional Interest in Ethereum
OKEx’s report says here are the main reasons for institutional investors increasingly becoming interested in having ETH exposure:
Normalization of cryptocurrency investing.
“Major BTC purchases by business intelligence firm MicroStrategy, life insurers Massachusetts Mutual and others appeared to prompt global financial companies such as JPMorgan Chase and Goldman Sachs to warm up to the industry. Tesla’s entry into the cryptocurrency market in early February 2021 further legitimized corporate and institutional interest in the space, and both BTC and ETH prices hit new highs shortly after the forward-looking vehicle manufacturer revealed its BTC position.“
Growing Ethereum use cases.
“Whereas the investment case for BTC primarily focuses on the asset’s store of value proposition, ETH is used as fuel for the decentralized applications built on Ethereum. Increasing DApp usage drives demand for ETH, and many of those speculating on the ETH price do so with the expectation that future network usage will increase the value of their investment.“
Although Ethereum has many use cases, OKEx notes that the two sectors that are seeing the strongest growth at the moment are decentralized finance (DeFi) and non-fungible tokens (NFTs).
In the case of DeFi, the report says:
“Growth in this sub-industry is typically measured by the total capital locked across all DeFi protocols. At the beginning of 2021, analytics provider DeFi Pulse reported around $16 billion in total value locked. The figure recently peaked above $62.32 billion in mid-April.“
Upcoming Ethereum updates.
OKEx says that the first phase of the network’s long-awaited upgrade to Ethereum 2.0 was implemented on 1 December 2020, which is roughly two weeks before CME Group announced that it planned to launch its ETH futures product in February 2021.
“ETH staked in the deposit contract for Ethereum 2.0 now exceeds 3.9 million — an almost 79% increase since Jan. 1, 2021. It seems fair to conclude that the network’s new passive income-generating potential is at least partly responsible for ETH’s recent price performance.…”
“Further increasing the appeal of investing in ETH is an upgrade scheduled for this summer. Planned for activation in July 2021, EIP-1559 will introduce a mechanism by which a percentage of transaction fees are forever destroyed.”
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.