The Merge ‘Completely Changes’ Ether’s Investment Case for Institutions

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  • Pen­sion funds and insur­ance com­pa­nies “now com­ing around” on prospect of allo­cat­ing to cryp­to, Wis­domTree exec­u­tive says
  • Ether invest­ment prod­ucts saw out­flows of $62 mil­lion last week, sig­nal­ing poten­tial “jit­ters” ahead of Merge

Dubbed the most sig­nif­i­cant event of this cycle — if not in the his­to­ry of cryp­tocur­ren­cy — Ethereum’s upcom­ing Merge is now draw­ing the atten­tion of indus­try par­tic­i­pants eying the grow­ing poten­tial of insti­tu­tion­al investors putting seri­ous cap­i­tal to work in the dig­i­tal asset. 

Insti­tu­tions with envi­ron­men­tal, social and gov­er­nance (ESG) con­sid­er­a­tions are like­ly to grav­i­tate toward ether going for­ward, indus­try watch­ers told Block­works — con­sid­er­ing the Ethereum Foun­da­tion esti­mates the blockchain’s ener­gy con­sump­tion to decrease by about 99.9% fol­low­ing the Merge.

“The prospect of Ethereum mov­ing to proof-of-stake com­plete­ly changes the invest­ment case for ether,” Ben Dean, direc­tor of dig­i­tal assets at Wis­domTree in Europe, told Block­works. “We’re cer­tain­ly see­ing more inter­est than we have in the past with folks turn­ing up and ask­ing ques­tions around stak­ing yields, around ether, around the dif­fer­ent tech­ni­cal spec­i­fi­ca­tions, but most impor­tant­ly the invest­ment case.”

Wis­domTree launched its phys­i­cal­ly backed ether fund in Europe in April 2021, draw­ing inter­est from hedge funds and fam­i­ly offices. 

But pri­vate banks and mid-sized wealth man­agers, who have been his­tor­i­cal­ly hes­i­tant to enter the seg­ment, are now pay­ing close atten­tion to the Merge. Oth­er large investors, such as pen­sion funds and insur­ance com­pa­nies, have the most strin­gent screens for what they can invest in, Dean added.

“They are the ones that are now com­ing around,” he said. “These are folks who pre­vi­ous­ly kind of cat­e­gor­i­cal­ly said, ‘No,’ with­out knowl­edge that the dig­i­tal asset space has grown and diver­si­fied over the last four years and that there are very dif­fer­ent invest­ment cas­es behind dif­fer­ent dig­i­tal assets.”

Jack McDon­ald, CEO of cryp­to infra­struc­ture firm Poly­Sign, told Block­works investors are gen­er­al­ly bull­ish about Ethereum’s tran­si­tion to proof-of-stake, call­ing it “a win-win for the industry.” 

“More and more insti­tu­tion­al investors are look­ing to get into the space, and the few­er obsta­cles that exist  — like ener­gy con­sump­tion — the bet­ter,” he said.

Pre-Merge inflows, then outflows 

Despite see­ing com­bined neg­a­tive net flows of about $450 mil­lion dur­ing the first six months of 2022, ether invest­ment prod­ucts notched inflows of $138 mil­lion in July, accord­ing to Coin­Shares data. 

Inflows into Ethereum prod­ucts had slowed to rough­ly $19 mil­lion in August, head­ing into the month’s final week, which sig­naled investors may pre­fer to wait for the Merge to occur before adding to posi­tions, Coin­Shares Research Head James But­ter­fill pre­vi­ous­ly told Blockworks.

Ethereum prod­ucts endured net out­flows of $62 mil­lion last week like­ly due to “investor jit­ters over the Merge,” But­ter­fill said in a Mon­day Coin­Shares report. 

Still, the Merge ticks many box­es for investors seek­ing to invest, par­tic­u­lar­ly from an ESG per­spec­tive, the research head has said pre­vi­ous­ly. He added that Ethereum could lead inflows and poten­tial price appre­ci­a­tion towards the end of the year.

While the blockchain’s depar­ture from proof-of-work will like­ly help con­vince some investors to gain expo­sure to ether, the bear mar­ket can­not be ignored, accord­ing to Milosz Papst, direc­tor at invest­ment research con­sul­tan­cy Edi­son Group.

“It is pos­si­ble that an accel­er­a­tion of allo­ca­tion to ether will mate­ri­al­ize only once the macro out­look bright­ens,” he said.

Addi­tion­al allo­ca­tion in the near term may large­ly come from fam­i­ly offices, high-net-worth indi­vid­u­als and hedge funds, Papst said, while adop­tion from larg­er insti­tu­tion­al investors — despite Ethereum’s dra­mat­ic ener­gy con­sump­tion reduc­tions — are like­ly to progress more slowly.


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  • Ben Strack
    Ben Strack is a Den­ver-based reporter cov­er­ing macro and cryp­to-native funds, finan­cial advi­sors, struc­tured prod­ucts, and the inte­gra­tion of dig­i­tal assets and decen­tral­ized finance (DeFi) into tra­di­tion­al finance. Pri­or to join­ing Block­works, he cov­ered the asset man­age­ment indus­try for Fund Intel­li­gence and was a reporter and edi­tor for var­i­ous local news­pa­pers on Long Island. He grad­u­at­ed from the Uni­ver­si­ty of Mary­land with a degree in journalism.

    Con­tact Ben via email at [email pro­tect­ed]

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