As DeFi Grows Do Institutional Investors View Ether (ETH) as a Warehouse of Value?

The question on investors’ minds is: Ether is growing. However, does a higher token value mean that Ether is a ‘store of value’ asset like Bitcoin?

Many discussions over Bitcoin last year have addressed the emergence of the asset as a store of value. As institutional investors continue to invest in Bitcoin, this narrative has become stronger than ever, with some even clearly describing BTC as a “protection against inflation”.

Coinbase released a report earlier this month with interesting data: Indeed, the exchange’s institutional customers said that Bitcoin’s evolving role as a store of value was a key part of their reason to invest in it. However, Coinbase noted that the same group of investors began to see another large-capacity asset as a possible store of value: Ether (ETH), the cryptocurrency of the Ethereum network.

Indeed, the report stated: “The most common reasons we hear from our customers to invest in Ethereum are:

1) Ethereum’s evolving potential as a store of value and 2) the status of a digital commodity necessary to power transactions on its network.

“While our institutional clients mainly bought Bitcoin in 2020, more and more investors invested in Ethereum, the second largest cryptocurrency by market cap,” the report said.

“Ethereum performed well against the dollar in 2020, outperforming Bitcoin, closing the year at $ 745, up 487 percent. Since then, the price of ETH has risen further: Earlier in the year, ETH surged to $ 1,470. According to data from Messar.io, ETH has risen more than 75 percent since the beginning of the year, while the price of BTC is just under 6 percent.

Institutional Investors Will Turn to Ether

While both Bitcoin and Ether are perceived by some investors as stores of value, there are some very important differences between the two assets. For example, Bitcoin’s value is its functionality; In the early days of Bitcoin, the digital asset was discussed as a transaction network: a ‘digital cash’. But as the network grew, scalability issues caused the network to be seen as a kind of “digital gold”: a store of value.

On the other hand, Ether has versatile functionality. Sure, ETH tokens have value, but tokens are used in practical ways on the Ethereum network. Additionally, while other tokens (called ERC20 tokens) are launched on the Ethereum network, ETH is the currency in which transaction fees must be paid in the network. Therefore, ETH is the “facilitator” of the network: the currency that allows transactions, smart contracts, and decentralized applications (dApps) to run.

That’s why Doug Schwenk, Head of Digital Asset Research, said that “perhaps in the short term ETH can be seen as a store of value”, but in the long run “properly valued for its utility and services.”

In fact, the growth of the DeFi ecosystem may have increased the value of Ether in the short term. “The high demand for Ether in DeFi applications is expected to have a long-term effect on the Ethereum price. However, the price of ETH is still subject to market sentiment in the short term,” said financial adviser Eloisa March.

Therefore, Ether is not a store of value in the same way as Bitcoin. However, this does not mean that it is not valuable and will not continue to grow in the long run.

Allnodes CEO and Founder Konstantin Boyko-Romanovsky said he believes sooner or later the majority of institutional investors will turn their attention to Ethereum, which has far more applications than Bitcoin.

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