Recent global developments have put the cryptocurrency sector in the spotlight as people around the world begin to question the decision-making process of governments and central banks.
Multiple metrics such as the increasing amount of Ether (ETH) and Bitcoin (BTC) locked up in DeFi, the rising transaction and on-chain activity and the declining BTC and Ether reserves of top exchanges show that investors are increasingly interested in cryptocurrency .
Data from CryptoQuant, an on-chain analytics firm, shows that as Ether (ETH) hit an all-time high of more than $ 1,500 on February 2, the amount of Ether held on all central foreign exchange reserves continued to decline. to new lows. containers withdrew their coins.
Many analysts believe that the fast-growing DeFi sector, the introduction of Eth2 and the increasing participation of institutional investors are the main reasons for the decline in BTC and Ether that are taking place on central exchanges.
The rise of DeFi and yield farming
Each week, the number of participants interacting with the DeFi sector appears to have reached a new high, and as of February 2, the total value locked up in DeFi platforms has reached $ 28.67 billion.
Data from Defi Pulse shows that most DeFi platforms are built on the Ethereum network and that Ether has to deal with the protocol.
In addition to offering attractive ways to earn a return on Ether lending, an increasing amount of the available offer is directed at DeFi-related activities and not available for trading purposes.
A similar phenomenon is happening with BTC, as holders who want to participate in the DeFi space without selling their Bitcoin have wrapped it in ERC-20 synthetic versions of Ether.
Platforms like REN and BadgerDAO are leading this effort and a similar decline in the available Bitcoin offering could also help push the price of BTC higher.
Eth2 and extended exclusion
Since the launch of the Beacon chain on December 1, 2020, the Eth2 contract has enabled token holders to invest their Ether in the new PoS contract by becoming validators for the network.
Data from the Eth2 Launch Pad show that 2,907,298 Ether worth a total of $ 4.39 billion are currently being invested in the network, earning an estimated APR of 9.2%.
The contract has a multi-year commitment, but for holders who refuse to increase the risk and volatility of the DeFi return, Eth2 revenue provides a way to earn a return over time rather than token tokens on wallets or in cold wallets to sit down.
Institutional investors begin to see Ether’s value proposition
Since 2020, Bitcoin has received the bulk of the attention of the institutional investment crowd, as investors such as MicroStrategy CEO Michael Saylor have taken the lead by buying huge amounts of Bitcoin and tweeting incessantly about its estimated future value.
Now that Bitcoin is more than a decade old and becoming more established, businesses may increasingly be looking for the next big opportunity that the cryptocurrency sector offers. With the explosion of DeFi and its current dependence on the Ethereum network, Ether is fast becoming a recommended choice for institutional investors.
Grayscale Investments temporarily closed its various crypto trusts at the end of December for new investments after the rise in the price of Bitcoin, but inflows resumed in early January and their total Ether holdings increased by 242% over the past 3 months.
Coinbase also noted in its annual 2020 review that institutional investors increasingly view Ether as a value building, while a growing number ‘of its institutional clients take a position due to the strong returns being offered.
The exchange also noted that although a majority of their customers bought BTC during 2020, the strong finish of Ether on the year saw it outperform BTC in terms of price growth, and this is a trend that will continue into 2021.
DeFi’s continued growth, the attractiveness of the Eth2 contract and the increasing participation of institutional investors all indicate that the Eth price may continue to rise.