With Ethereum trading over $1,600 on price charts for the first time in days, there is an indication that the demand of the altcoin will increase even further in the near term. There are, in truth, valid explanations for those aspirations. Over all, interest from institutions has steadily increased, and Grayscale is still purchasing more Ethereum to add to its assets.
Consider this – Grayscale has finished the acquisition of almost 20,000 ETH in the last 7 days. At the time of publishing, the gross assets of Grayscale amounted to 3.17 million ETH, based on data from bybt.com.
As the asset premium was negative at 4.62 per cent, it can be predicted that demand from institutions will begin to rise in the coming weeks. In reality, this pattern began as early as 2020 when demand for Ethereum increased considerably with an increase in Ethereum loans outstanding. Simply placed, more traders and institutions are seeking loans against Ethereum as collateral.
According to the latest estimate by Arcane Research, after the end of Q1 of the Genesis Loan composition at 5.5 per cent, the share of unpaid ETH loans increased by 177 per cent over the following three quarters and finished the year at 15.5 per cent. However, part of the reason for such a rise in ETH’s loan share can be traced to its price appreciation, which is not all.
In reality, a large part of the cause is linked to the institutional demand for ETH. For example, the overall Open Interest in Ethereum Options seemed to underscore the increase in demand and its effect on the price year-to-date.
As can be seen from the attached maps, there was a jump in the OI at the beginning of January 2021, which has now lasted more than two months. At press time, the OI continued to trend above $2 billion. This gap in OI, relative to all of 2020 and 2021, describes the increase in price and the effect of institutional demand on the price of Ethereum.
While the increase in demand on its own does not insure an increase in Ethereum’s price over the short term, over a span of 2 months, it has fuelled a 127 per cent increase in price. The price of ETH is primarily determined by the availability and volume of transactions on the Ethereum network, as well as on-line metrics, with the latter hinting at bearish sentiment at press time.
Ergo, the commodity could be overvalued at this time, opening up the prospect of a short-term price reversal. By definition, though market capitalisation and network use will begin to increase, the price may dip before rising in the longer term.
606 Interactions, 12 today