- Ethereum (ETH-USD) stands to benefit as large-cap digital assets are favored
- Fund manager perceptions about digital assets are shifting along with those of their clients, benefitting ETH
- The transition to a proof-of-stake protocol will benefit Ethereum
Ethereum (ETH-USD) makes a lot of investment sense right now because of a few prominent factors. It is increasingly attractive to institutional investors, for one. And Ethereum’s transition to a proof-of-stake (PoS) protocol should raise its prices significantly. Although its price has risen, there’s more room to grow, making it worthwhile at the moment.
| ETH-USD | Ethereum | $3,236.79 |
Institutional Interest in Ethereum
A recent survey of fund managers conducted by CoinShares has provided some interesting insights. Importantly for Ethereum, it looks like investors are moving back into large market capitalization cryptos — namely, itself and Bitcoin (BTC-USD).
The two largest cryptos by market cap have valuations of $389 billion and $833 billion, respectively, with Bitcoin being the more valuable of the two.
That survey showed both Bitcoin and Ethereum were rated as having the best growth outlooks. Together, they make up roughly 50% of the answers to the question of which digital asset has the most compelling outlook.
The only other name on the list that showed a positive trend since the previous survey was Solana (SOL-USD). In short, retail investors who understand that institutional investors can sway the markets should consider moving into those names.
What’s Underpinning the Movement
The reasons institutional investors are moving into large-cap crypto assets like Ethereum may be surprising. Those fund managers responded that they are now investing in ETH not just because it’s speculative, but also because it’s seen as a “good value.”
In addition, at least 25% of those fund managers surveyed are adding digital assets for the purpose of diversification. That was up from 15% in the last survey.
One thing to take from the survey results is that digital assets like Ethereum are evolving. They aren’t as much of a speculative gamble as before. They are becoming a respected part of a diversified and balanced portfolio. And with large-cap assets en vogue, Ethereum sits in a strong position to receive capital.
While the overall news is positive, there are some risks. A greater percentage of the fund managers responded that reputational risk prevents them from investing in digital assets. That suggests crypto still has a poor image in the world of high finance. So even though those institutional investors prefer Ethereum to other cryptos now, it still has a bit of a tarnished name.
The overall take is positive at present in any case. Plus, it should continue to move upward as Ethereum changes its mining protocol.
Proof-of-Work Versus Proof-of-Stake
Once Ethereum fully transfers over to a PoS protocol, its price will rise. Decentralized blockchains lack a central gatekeeper to verify transactions. Blockchain technology relies instead on consensus mechanisms known as proof-of-work (PoW) or proof-of-stake.
Ethereum is currently a PoW dominant protocol. That means miners compete to solve complex math problems that use significant amounts of computational power and require lots of electricity. That’s one of the major complaints about cryptocurrency.
In fact, Ethereum uses 113 terawatt-hours of electricity per year. That’s equivalent to the electricity usage of the entirety of the Netherlands.
Fortunately, Ethereum is slated to transition to PoS sometime in the first half of this year. That should decrease its energy consumption by 99%. That will be a wonderful achievement, but that alone won’t raise the prices of ETH.
Fortunately, PoS will allow Ethereum to scale while potentially taking its transaction speed to 100,000 per second. That would be a massive increase in network throughput. Ethereum’s current transaction speeds can be found here. The two times I viewed them, the transaction speeds were 10 and 50 transactions per second, respectively.
Ethereum has already staged quite a comeback over the past two weeks. But institutional investor sentiment is in its favor and the transition in its mining protocol could take it far higher.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
