Coin Metrics: Institutions are the main drivers of the rise of Ethereum

In the past week, the price of Ethereum reached an all-time high, rising from below US$2,100 two weeks ago to above US$3,300. Although Ethereum broke its own dollar-denominated record, it still hasn’t broken its Bitcoin- denominated record.

The price of Bitcoin last month reached 3.2 times its peak price in the previous bull market in December 2017. But the highest price of Ethereum so far is still 2.4 times that of January 2018.

550361323e23056e80dd14e80aa0f852.jpg-articleEthereum and Bitcoin in U.S. dollars

The success of Ethereum in 2021 is mainly driven by retail investors . The explosive growth of NFT has brought new users and mainstream attention to Ethereum. As more and more investors enter this ecosystem, DeFi’s total value lock-in continues to reach new heights.

The data on the chain provides evidence for the growth of Ethereum’s retail investors. Since the beginning of the year, the number of ID addresses holding a relatively small number (between 0.01 and 1 Ethereum) has increased by about 3.8 million, and the total number has exceeded 13.6 million. On May 4, 2018, there were a total of 3.8 million addresses containing 0.01-1 Ethereum.

168282f13baf9e349e10e3c927ff59d6.jpg-articleHave 0.01-1 Ethereum addresses

The bull market cycle of Ethereum from 2017 to 2018 was also driven by retail investors. But there is still a huge difference between the last cycle and this round: the participation of institutional investors. Since 2020, institutional investors have stepped into the cryptocurrency field at an unprecedented pace, so that their prices will reach another peak in 2021.

Institutional participation

Although institutional investors have been pouring into Bitcoin, the speed of entering Ethereum has been slightly slower. But there are signs that as the summer enters, Ethereum is beginning to attract institutional investors .

Chicago Mercantile Exchange (CME) futures are one of the main ways for institutional investors to gain exposure to cryptocurrencies. Unlike most cryptocurrency exchanges, CME Group is regulated in the United States and has a long history with traditional derivatives, which makes it a trusted institutional exchange.

CME first launched BTC futures in December 2017. But they only added ETH futures in February 2021. Although CME Ethereum futures trading volume was relatively low in March, it surged in April, reaching a high of more than US$500 million per day .

c52cd56d5f15c10eb13752ae686c0841.jpg-articleEthereum futures trading volume on the Chicago Stock Exchange

Although CME’s Ethereum futures trading volume is growing, it is still much lower than BTC. CME BTC futures have hit a daily high of over $6B so far in 2021, but the BTC trading volume peaked in late February. ETH trading volume only started to hit a new high in April, and it seems to be still increasing.

cb35de6d775cb88a9e9b093b69f3ac74.jpg-articleBitcoin futures trading volume on the Chicago Stock Exchange

Although the institution has not yet significantly involved in Ethereum, it will soon be attractive enough to the institution .

Improving the economic structure of Ethereum

Until now, some institutions are still concerned about the economic structure of Ethereum and the relatively high inflation rate compared to Bitcoin. But the upcoming Ethereum Improvement Proposal (EIP) 1559 explains some of these concerns.

EIP-1559 will be released in July as part of Ethereum’s upcoming London hard fork. In addition to improving ETH gas UX, EIP-1559 will consume a portion of ETH transaction fees. This will permanently remove part of the supply from circulation and reduce the daily net issuance of Ethereum.

For example, the figure below shows what the daily net issuance of ETH would look like if EIP-1559 caused 75% of the cost to be consumed. This is a historical estimate calculated by subtracting 75% of the daily cost from the daily ETH issued-compared with the percentage of the cost that will be consumed after EIP-1559 goes online, it is impossible to know exactly the cost of consumption. But it shows that the issuance volume may be greatly reduced, and may even become negative during periods of extremely high fees.

21e3e3a8e29f72a7b791c17839d59df9.jpg-articleEstimated issuance with EIP-1559

This will result in an estimated annual inflation rate (30 days on average) between 1-2%. This is just an estimate, it will fluctuate based on the number of daily transaction fees and the percentage consumed. But overall, Ethereum’s inflation rate should be greatly reduced.

4ede22016492f01140c44085ca4fa360.jpg-articleEstimated inflation rate with EIP-1559

In addition to EIP-1559, other improvements are also in progress. The introduction of Ethereum 2.0 PoS transformation will effectively turn Ethereum into a profitable asset. 4.1 million Ether has been locked in the Ethereum 2.0 mortgage contract. As Coinbase and other companies introduce Ethereum collateral, the amount of collateralized Ethereum will increase .

Layer 2 scalability solutions have also been launched. AAVE recently launched an integration with Polygon (MATIC), which already has a deposit of more than $2B. Solutions including Immutable X are helping the NFT platform expand, which will help further attract retail investors.

If retail investors continue to trade Ethereum and more institutions begin to enter Ethereum, Ethereum may become the second largest cryptocurrency by market value in the second half of 2021.

Network data insight



Since the price exceeded $3,000 for the first time, the market value of Ethereum increased by 19.7% on a week-on-week basis. However, ETH active addresses have declined after hitting a record high of over 900,000 last week.

BTC’s computing power increased by 8% every week, and recovered after a decline in mid-April due to power outages in the northwestern region.

Network highlights

With the continuous growth of DeFi and unprecedented demand for block space, Ethereum transaction fees have soared to a record high in 2021. However, although the network usage rate is still high, the average gas price of Ethereum in May has dropped to the lowest level since December 2020 .

On April 22, Ethereum miners increased the gas limit to approximately 15 million per block. This means that each block has more free space, which helps lower the average gas price.

5032419a96f337138db641ff7bf746b5.jpg-articleComparison of average gas price and gas upper limit

On April 22, the average transaction volume per block reached 246, which is the highest level since January 2018. Since then, the average transaction volume has remained above 213, which is the highest level in the past two years.

d7918bc9a792ecbedc5a7ed4dcc64bb1.jpg-articleComparison of Ethereum block average transaction volume and gas upper limit

Although the price of Ethereum hit a record high, the average transaction fee denominated in U.S. dollars has dropped below $10 .

b5df0e58167982d27ff830d62d0f4f70.jpg-articleEthereum average transaction fee and gas cap comparison

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