First quarter review: Price growth exceeds Bitcoin, three reasons behind Ethereum's rapid growth

The first quarter of 2021 has officially come to an end. By most metrics, Ethereum had an outstanding Q1. The network’s native cryptocurrency, Ether (ETH), far outperformed Bitcoin (BTC) and traditional macro assets in terms of price gains, rising 156% this quarter. Several ETH investment products have also been launched, paving the way for more institutional participation in the Ethereum market.

The first quarter also produced several milestones related to the Ethereum technical roadmap and the progress of the Ethereum 2.0 upgrade.

In the first quarter of 2021, the total value locked in Ethereum 2.0 more than doubled from 1.5 million ETH to 3.6 million.

As the number of users depositing Ether in 32ETH increased during the quarter, the number of active validators securing the network also increased. As of February 27, 2021, the number of active validators exceeded 100,000, and as of April 12, 2021, it exceeded 118,000.

In USD terms, the total value locked in Eth 2.0 exceeded $8 billion in early April, at the same time that the market price of Eth surpassed the $2,000 per unit valuation. This makes the Eth 2.0 network the fifth largest Proof-of-Stake (PoS) network.

“Ethereum killer” not so fast

In about four months, Eth 2.0 has grown into a sizable competitor to other more established and long-running PoS networks such as Tezos and Cardano. However, one important difference with Eth 2.0 compared to other PoS networks is that the vast majority of the Eth supply is not used for crypto.

As of April 12, 2021, Eth 2.0 has only locked up about 3% of the ether supply. Compared to other PoS protocols, Eth 2.0 has the lowest coin-stake ratio, which is close to 80%.

Why?

Because most of the new Ethereum supply is issued on the parallel Ethereum blockchain secured by miners and the Proof-of-Work consensus algorithm. In addition, Ethereum has a thriving decentralized application (dapp) ecosystem that competes with Ethereum’s use case as a staking asset.

For other PoS protocols, their native tokens are largely used by validators to earn rewards on the network. For Ethereum and Ethereum 2.0, Ethereum is used in many different ways by users, dapp developers, and more recently, institutional investors.

More ether use cases

In the first quarter of 2021, Ethereum had several new use cases that attracted the attention of deep-pocketed investors and institutions.

The first is ether as a medium of payment for non-fungible tokens (NFTs). It has always been possible to buy NFTs with ETH on Ethereum, and they have attracted some mainstream attention through the game CryptoKitties in 2017. However, the hype around digital collectibles reached new extremes in the first quarter of this year.

In the past three months, writers, artists, athletes, businesses and even robots have released digital art works on Ethereum. While the number of people participating in this technology is very large, what is different about this NFT craze compared to the CryptoKitties craze in 2017 is the participation and support of high-profile individuals and organizations.

Christie’s, one of the world’s leading auction houses, auctioned a non-realist work for $69 million on March 11, 2021, and accepted payment for the work in Ethereum. A day after the auction, the New York-based news agency Associated Press also sold an NFT artwork for $180,000.

Since December 2020, total NFT trading volume has surged more than 25 times.

In addition to Ethereum’s growing use case as a payment medium for NFTs, we’re seeing the early beginnings of what could become an industry trend: Ethereum as a reserve asset for enterprises.

Software company Meitu reportedly purchased $22 million worth of crypto assets on March 7, 2021. This comes weeks after digital asset merchant bank Galaxy Digital launched an Ethereum fund for institutional investors. As of March, the company raised a total of $32 million from deep-pocketed clients who wanted to gain exposure to ETH without the custody of physical assets.

Finally, the last use case I want to highlight that has attracted institutional attention over the past quarter is staking. As we can see from the Pulse check, there is currently over $8 billion of ETH locked in Ethereum 2.0. In comparison, the number at the beginning of January was $2.4 billion. Over the past quarter, validators have been earning up to 0.25 ETH per month, which is worth about $570 at the time of writing.

Institutional investors eye Ethereum

How do we know that this has caught the attention of some institutional and accredited investors? Because on March 25, investment-as-a-service provider Stark launched an investment product specifically for them.

The new ETH Investment Trust gives investors direct exposure to ETH and the ability to earn an annual interest of about 8% from investment returns. The minimum investment is $25,000 and the lock-up period is 12 months.

According to Tim Ogilvie, CEO of stked, products such as stked ETH Trust have been ahead of the institutional interest that has begun to naturally spill over into Ethereum and Ethereum 2.0 over the past few months.

“As you see a lot of institutions interested in bitcoin, I think the natural next step is how does Ethereum work? There is a group of investors who think the risk/reward of Ethereum is significantly higher than that of Bitcoin,” Ogilvie told CoinDesk in an interview.

The first quarter of 2021 highlighted several possible use cases for Ethereum. ETH can be held as a speculative investment, invested in decentralized finance (DeFi) applications, used to purchase non-fungible tokens, held interests on Ethereum 2.0, or purchased as a company balance sheet reserve asset. Any of these use cases has the potential to become the dominant use case for Ethereum and its native token Ethereum in the coming months. (China Finance Network)