May 30, 2023

Ethereum’s upcoming merger to change the consensus layer from proof-of-work to proof-of-stake is likely to be a critical factor in accelerating Ethereum’s rise to institutional-level investment, according to a Bloomberg Intelligence report.

Additionally, the report suggests that Ethereum’s growth will depend on its pedigree as a social and economic tool. There are promising signs as the total ETH locked in smart contracts has increased by 1.4% in three years. While NFTs have seen a temporary lull, BI believes they have the potential to displace stablecoin and decentralized finance.

The expansion of use cases boosted Ethereum’s blockchain activity compared to the previous bear market. Both stablecoins and decentralized currencies have been challenged by the liquidity crisis in some major crypto companies that have either filed for bankruptcy or halted withdrawals.

In mid-July, fund manager CoinShares released one report saying that Ether inflows were on a three-week streak, with $7.6 million going to institutional investors. The Grayscale Ethereum Trust Offers exposure of institutional investors 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 hit back at critics of Ethereum who falsely claimed that changes to the Ethereum code are decided by a governance vote.

Ethereum beats bitcoin in key metrics

The report suggests that Ethereum could be mispriced considering the recovery from the May 21, 2022 peak.

It has outperformed bitcoin in three vital on-chain metrics: active users, non-zero balance addresses, and transactions.

Bitcoin has been hit by the Federal Reserve’s rate hikes and will likely continue to trail stocks lower if rate hikes continue. However, it is still five times above the March 2020 low in early August 2022.

Active Ethereum addresses with non-zero balances are at an all-time high. Active addresses were mostly flat compared to a year ago, but were up 113% compared to three years ago, surpassing bitcoin. The number of active bitcoin addresses fell by 30% in the same period. As of July 26, 2022, the 7-day mobile average of active users is up 46% or 180000 in one month. Ethereum transfer volumes fell 7% despite a 29% drop in price.

Creating multi-asset tokens is a separate feature

According to the report, crypto assets seem to be heading towards futures and exchange-traded funds, having written off the tumultuous days of 2020 and 2021.

Similar to how futures provide exposure to assets without the investor needing to own the asset, there is little to stop all kinds of assets from contributing, except perhaps for technical and regulatory hurdles. The report believes that the fact that Tether and USDC are powered by Ethereum testifies to the value of blockchain technology.

By the end of 2022, Ethereum could offer staking returns of 6-9%, with a deflationary issuance pattern, the report adds, provided the merger takes place within that time frame.

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