Recent global developments have put the spotlight on the cryptocurrency industry, as people around the world begin to question the decision-making process of governments and central banks.
Multiple metrics, such as the increase in the amount of Ether (ETH) and Bitcoin (BTC) blocked in DeFi, increasing transactions and on-chain activity and the free falling BTC and Ether reserves of the main exchanges show that investors are increasingly interested in cryptocurrencies.
Data from CryptoQuant, an on-chain analytics company, show that as Ether (ETH) set a new record above $ 1,500 on February 2, the amount of Ether retained in all centralized exchange reserves continued to fall to new lows as token holders have withdrawn their coins.
Many analysts believe that the rapidly expanding DeFi sector, the launch of Eth2 and the increased participation of institutional investors are the main reasons for the fall of BTC and Ether on centralized exchanges.
The rise of DeFi and agricultural production
Each week, the number of participants interacting with the DeFi sector seems to reach a new maximum and, as of February 2, the total amount blocked on the DeFi platforms reached US $ 28.67 billion.
Defi Pulse data shows that most DeFi platforms are built on the Ethereum network and require Ether to transact with the protocol.
In addition to offering attractive ways to make a profit simply by borrowing Ether, an increasing amount of the available supply is being directed towards DeFi-related activities and is not available for commercial purposes.
A similar phenomenon is happening with BTC, as holders looking to participate in the DeFi space without selling their Bitcoins wrap them in ERC-20 synthetic versions of Ether.
Platforms like REN and BadgerDAO lead this effort and a similar drain on the supply of available Bitcoin may also be helping to push the price of BTC up.
Eth2 and extended lock staking
Since the launch of the Beacon chain on December 1, 2020, the Eth2 contract has enabled token holders to bet their Ether on the new PoS contract, becoming the network’s validators.
Data from the Eth2 Launch Pad shows that there are currently 2,907,298 Ether worth US $ 4.39 billion wagered on the network, earning an estimated APR of 9.2%
The contract has a multi-year commitment, but for holders who refuse to tolerate the risk and volatility of DeFi crop cultivation, Eth2 staking offers a way to win a crop over time, rather than leaving tokens standing in cold purses or wallets.
Institutional investors begin to see Ether’s value proposition
Since 2020, Bitcoin has received most of the attention from the institutional investment crowd, as investors like MicroStrategy CEO Michael Saylor lead the way by buying huge amounts of Bitcoin and tweeting non-stop about its estimated future value.
Now that Bitcoin is more than a decade old and seen as more established, companies are increasingly open to looking for the next big opportunity that the cryptocurrency industry has to offer. With the explosion of DeFi and its current dependence on the Ethereum network, Ether is quickly becoming a recommended choice for institutional investors.
Grayscale Investments temporarily closed its various crypto trusts for new investments in late December after the Bitcoin price hike, but inflows resumed in early January and its total Ether holdings increased 242% in the last 3 months.
Coinbase also noted in its annual review of 2020 that institutional investors are increasingly viewing Ether as a store of value, with “an increasing number” of their institutional customers taking a position in the token due to the strong returns offered.
The exchange also noted that while most of its customers bought BTC throughout 2020, Ether’s strong end of the year saw it overtake BTC in terms of price growth and this is a trend that continued into 2021.
DeFi’s continued growth, the lure of the Eth2 contract and the growing participation of institutional investors are all signs that the price of Eth may continue to rise.