Ethereum’s Advantages for Institutional Investors
According to Fidelity’s Director of Research, Chris Kuiper, Ethereum (ETH) may offer advantages to institutional investors compared to Bitcoin (BTC). Kuiper believes that legacy finance is progressing beyond Bitcoin and becoming more open to other digital assets.
Institutions Moving Beyond Bitcoin
Kuiper highlights that one of the factors making Ethereum attractive to investors is its maturation as a protocol. He points out that Ethereum has differentiated itself from Bitcoin through its switch to proof of stake and other upcoming developments. This differentiation contributes to the diversification narrative favored by institutional investors.
Ethereum underwent a significant upgrade known as the “merge” about a year ago, transitioning from proof of work to proof of stake. This upgrade has brought numerous benefits, including a 99% reduction in electricity consumption, decreased inflation rate for Ether, and improved scalability through sharding.
On the other hand, Bitcoin undergoes fewer upgrades and lacks a specific development roadmap or centralized development team. Fidelity previously highlighted this decentralization as a key quality of Bitcoin, which lends credibility to the scarcity of its underlying asset and positions it as the ultimate monetary good.
Ether As Money
Fidelity suggests that Ether may also be considered an emerging form of money, particularly due to its deflationary tokenomics following the merge. The various upgrades made to Ethereum have increased the scarcity of Ether, making it potentially more attractive as a store of value.
However, Fidelity analysts note that the theoretically bullish burning mechanism for Ether has yet to impact its price. While supply has decreased since the merge, demand for Ether remains uncertain. Additionally, Ether lacks the first mover advantage and network effect enjoyed by Bitcoin. Some people also question whether Ethereum’s frequent changes in the past will continue in the future.
Overall, institutional demand for assets beyond Bitcoin and Ethereum is limited. The analysts believe that the potential benefits do not outweigh the effort required to explore other digital assets.
Hot Take: Ethereum’s Maturation and Institutional Interest
Ethereum’s maturation as a protocol, including its transition to proof of stake and other upgrades, has positioned it as an attractive option for institutional investors. These developments have set Ethereum apart from Bitcoin, contributing to the diversification narrative favored by institutions. However, while Ethereum may be considered an emergent form of money with its deflationary tokenomics, it still faces challenges such as price reflection and doubts about its future changes. Despite these considerations, Bitcoin and Ethereum remain the primary focus for institutional investors, leaving other digital assets with limited institutional demand.
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