Is ETH coming into the balance sheets?

MicroStrategy, Tesla and Square succeeded. Many others too, albeit more discreetly.

I’m talking about keeping the corporate treasury reserves in bitcoin. This trend is attracting attention even from the specialized press. Crypto consultants and companies are struggling to launch services to help companies navigate the process. “Mad Money” host Jim Cramer thinks it’s “almost irresponsible” for companies not to do that. This week, Deloitte sponsored content explaining the benefits and risks appeared in the Wall Street Journal.

Whether it is a good idea or not – it is up to each corporate treasurer to decide – a question we are beginning to hear is: “What about ether?”

Would the native token of the Ethereum blockchain be a good corporate reserve asset?

The main arguments for bitcoin as a corporate reserve asset are:

This last point is fundamental, since the main function of corporate treasury is the preservation of capital. Here, bitcoin’s main value proposition – as a store of value – comes into play.

Critics point out that bitcoin is too volatile to be a store of value. This is a short-term view of the concept, however. Over the next week, month, maybe even year, the price of bitcoin may fall in relation to fiat currencies. In the long run, however, in a money supply environment growing much faster than demand, a fixed offer support asset, such as bitcoin, is likely to appreciate against assets without a fixed offer, such as the US dollar. As investor Paul Tudor Jones has pointed out, even with only a 2% inflation target, money is a “losing asset”.

Do these arguments apply to ether?

Not so much, no. But that does not mean that the ether will not end up on corporate balance sheets.

Ether’s supply is limitless. It is still considered a store of value, however, since the growth in supply is modest (currently around 4%, forecast to decline over time) and will likely remain well below the growth in demand.

However, the value reserve narrative is not – at this stage – the main motivator behind ETH’s investment case, especially in the eyes of institutional investors.

Ethereum is seen more as a technology game. More than that, it is one of the most liquid experimental technology games accessible to investors today. It’s not just about building a rocket faster or optimizing dentistry. Its goal is to reinvent the way automated applications of any kind are run. Its objective is to build the final basic layer of a global digital economy. As well-known macro analyst Jim Bianco said earlier this week, decentralized finance is “recreating the entire financial system”. Ethereum-based applications can also impact markets, governance, energy, utilities, perhaps even how identity is managed.

What’s more, this will happen on a network that can reach anyone, anywhere, who can connect to a public network.

Bitcoin is also a bet on technology – it has unleashed an entirely new way of transmitting value in the world. But the basic parameters were incorporated into the design. Significant updates have been made for a few years.

Ethereum is not only a bet on the growth of a decentralized economy, it is also a bet on a whole new type of connectivity and innovation layer. And its technology is not yet fully formed.

Because it is such an early bet on such a radical innovation, the risk is even greater than with bitcoin. This can be seen in its volatility:

If bitcoin volatility is an impediment for corporate treasurers, ether is understandably even more so.

This does not mean that the ether will not end up on corporate balance sheets, however. Instead of as corporate reserves, this is more likely to happen in working capital.

Ether is required to power applications on Ethereum, either as an entry or for transaction fees. Any company that intends to use the Ethereum platform for internal processes, such as contract management, guarantee allocation or performance optimization, or for customer-oriented services, such as negotiation, loan or insurance, will need a stable supply.

The launch of ETH futures at CME earlier this year will encourage this, as it offers tools to reduce the risk of volatility. The maturing of ETH options will further support risk management.

The accumulation of ether as working capital may have already started. This week, Meitu – a social media software and application company listed on the Hong Kong Stock Exchange – released bitcoin and ether purchases of approximately $ 18 million and $ 22 million, respectively, and said the following about its purchase of ether:

“The Group is currently evaluating the feasibility of integrating blockchain technologies with its various businesses abroad … the ether acquired would become the gas reserve for the Group’s potential dAPP (s) to consume in the future. “

It is still early days, as few companies outside the crypto industry have integrated applications based on Ethereum. However, signs are emerging that interest is piquing. This week, multinational insurer Aon Mutual, whose origins date back more than 100 years, embarked on a decentralized insurance pilot. Last month, we reported that Deutsche Telekom, Europe’s largest telecommunications company by revenue, was experimenting with decentralized data.

As the Ethereum use cases begin to impact traditional businesses, and as more crypto companies using decentralized applications grow to a significant size, we will begin to hear more conventional conversations about ether on the balance sheets.

A greater focus on the asset’s role in driving digital processes will add another layer to your value proposition. As we saw above, the ether is a game of technology. It is also a store of value. Institutional investors are increasingly interested in ETH for these reasons. In the future, ETH is also likely to benefit from a growing recognition of its role as a consumable commodity.

“Digital oil”, so to speak, to bitcoin’s “digital gold”.

According to sources, Goldman Sachs has relaunched its cryptocurrency trading desk after a three-year hiatus and plans to once again support the trading of bitcoin futures. TO REMOVE: At this stage, we do not need further evidence that the “institutions are here”, but here it is anyway. Goldman would not be doing this if its customers did not ask. As if to emphasize the point, news came out this week about a survey of Goldman customers that shows that out of 280 respondents, 40% have exposure to cryptocurrencies and 22% of respondents expect the price of bitcoin to exceed $ 100,000 in 12 months.

Other research produces different results. JP Morgan interviewed 3,400 institutional investors, 78% of whom said it was unlikely that their company would invest or offer crypto trading services.

Galaxy DigitalThe company’s institutional-grade ether funds have raised more than $ 32 million since their launch in February, according to documents filed this week with the SEC. TO REMOVE: The distribution is still relatively narrow, but not insignificant – five institutional investors have placed considerable bets on the evolution of the Ethereum blockchain. (To see our special report on the differences between bitcoin and ether from an institutional investment perspective.)

Cryptographic custody BitGo received approval from the New York Department of Financial Services (NYDFS) for a New York trust agreement. TO REMOVE: This brings more custody encryption services, this time from one of the oldest businesses in the industry, to Wall Street hedge funds and, even more intriguing, to Wall Street banks, who may be interested in offering this service to your customers.

Encryption exchange Kraken is contemplating a public listing in 2022, according to an interview with CEO Jesse Powell on Bloomberg TV. TO REMOVE: As one of the largest exchanges in the industry, a listing on Kraken would give us a more valuable insight into the market’s plumbing. So far, we only have Coinbase filing documents to follow and – however revealing they may be – they still don’t show a full picture of the industry’s potential.

Cryptographic mining technologies, a United States-based bitcoin mining operation recently formed by bitcoin mining hardware giant Bitfury Top HoldCo and Good Works Acquisition, a special-purpose acquisition company, agreed to merge, with a business value of $ 2.0 billion. TO REMOVE: So far, mining companies dominate the list of listed crypto companies. The more, the better – better understanding of the fundamentals of the industry, as well as more flexibility in exposure to cryptography for portfolios.

The Bloomberg terminal now provides price data for six more cryptographic assets: orchid, omg network, EOS, chain link, complexions and stellar lumens. TO REMOVE: To be filed as “increased institutional interest in decentralized finance”.