In our last report, we highlighted the bullish factors indicating ongoing upward price momentum for Ether. ETH has since seen all-time highs – let’s look at the various factors underpinning price action in the market today.
CME Futures Trading on the Horizon
The Chicago Mercantile Exchange (CME), one of the largest derivatives exchanges in the world, looks set to start trading ETH futures today as planned.
The move could bring unprecedented mainstream attention to ETH as an asset in the wider financial market. CME’s ETH liquidity providers include BlockFi, Genesis, and Coinshare.
The ETH futures are cash-settled and based on the CME CF reference exchange rate. Each monthly contract represents 50 ETH with a minimum block trade size of 50 ETH.
ETH price has crept down almost $100 from the all-time highs above $1,763 seen last week. While correcting after an ATH is normal in any market, it’s possible that apprehension around the magnitude of the CME Futures trading is at play there as well.
“Bringing more financial instruments will bring more participants into the market,” said Sachin Patodia, a partner at Avon Ventures, a venture capital fund affiliated with the parent company of Fidelity. “That probably is positive for the ether price.”
A mainstream derivatives exchange opens up the possibility for institutional investors to hedge long positions on ETH using cash-settled futures.
Of course, there are other institutional factors at play. Grayscale reopened its Ethereum Trust after closing in December and saw inflows of 10,000 ETH last week alone.
Grayscale now manages $5 billion worth of ETH.
Gas Fees Separate Whales From the Rest
Gas fees have seen a major increase on Ethereum since last summer, and remain very high by historical levels. Many DeFi users have been complaining that the ecosystem is now inaccessible or inefficient to use for them.
The rise in gas fees has roughly coincided with the rise in ETH prices. However, the gain in fees is not proportional. It could cost $40 to $50 to trade $10,000 on Uniswap at the moment, and the same fee would likely apply to a trade of just $100. This makes larger trades more cost effective and benefits high-net worth individuals over retail traders.
Of course, Ethereum developers are working on multiple scaling solutions, with Eth2 nearing ever closer. However, for the near-term, the gas fees pose an obstacle to the wider adoption of the DeFi space.
The DeFi ecosystem now has $34.7 billion in total value locked (TVL), with Maker in the lead at $5.81 billion in TVL and Aave following behind it with $5.51 billion.
ETH’s “Price to Sales” ratio is also at an all time low, despite the giant run up in the price of ETH. This was highlighted in Grayscale’s “Valuing Ethereum” report which was published last week.
Crypto Adoption Continues
Visa piloted a program for U.S. banks to offer Bitcoin-related services last week, made possible through Anchorage, the world’s first digital-asset bank.
Ethereum 2.0 developers met last Tuesday to further discuss how to transition the network update and merge the original network with the new Beacon Chain. The discussion included Vitalik Buterin’s proposal on data availability and erasure coding as ways of making the network more efficient.
Much of ETH’s price performance is tied to that of Bitcoin. While the fundamentals are now in place for an ETH run, Bitcoin needs to be performing well for us to see what ETH has to offer. Overall, the market fundamentals now support an ongoing bull run for both of the two major cryptocurrencies.
Next week on February 15, a DeFi Hackathon will take place hosted by the Solana Foundation and Serum. There is up to $400,000 in prize money to be won, including a $200,000 prize pool to be sent to the top 9 teams. Those teams will also have the opportunity to gain further seed funding later on.