Whats so good about Ethereum?
Cryptocurrency can get tribal.
If you want to test that theory out, try bringing up Ethereum the next time you're in conversation with a Bitcoin maximalist.
(The mood will change, fast).
If they call it an 'inferior shitcoin' and leave the conversation, you'll have gotten off easy.
This sort of emotional attachment to a coin / stock / company is everything you're taught not to do when investing.
(Emotional attachment can blur your outlook).
But in crypto, it's almost commonplace.
So when the folks that have trained themselves to be cold hard emotionless money allocating machines (a.k.a. institutional investors) start coming into the space, where're they going to put their money?
Most people assume it's going to be Bitcoin with a side of Ethereum (they're the largest and most heavily tested coins) - and they're probably right.
But of late, we've started to hear a theory that Ethereum will be the prize jewel of the institutional investor's portfolio (second to none).
And this latest news from Coinbase tends to back that theory up...
Coinbase Prime has added Ethereum to its expanding list of staking options (i.e. high interest accounts) for its U.S. institutional clients.
Which is pretty forgettable news on the surface, but it gets interesting when you ask the question:
What makes ETH so attractive to institutional investors?
ESG (Environmental, Social, and Governance) approval
Staking
Supply shock
Here's what all of that means:
ESG (Environmental, Social, and Governance) approval.
Having ESG approval is kind of like having the 'dolphin-safe' sticker on your can of tuna. It says to consumers that you're environmentally conscious...even if it is kind of bullshit.
(E.g. Tesla are not ESG approved, but some oil companies are. It's all a bit off).
Regardless, ESG approval is valued by many investors.
Ethereum's 'Merge' upgrade will see the network save up to 99% of its energy, making it very ESG friendly - which will appeal to institutions with green mandates.
Staking
This one is simple.
Staking will allow institutions to lock up their ETH holdings and earn interest on them, so they will make money when they hold ETH (~6-10% a year), as well as when they sell it.
It'll kind of be like a growth stock that pays dividends (which is rare).
Companies usually only start paying dividends to their investors once they've reached a 'growth cruising altitude.'
Supply shock
Unlike Bitcoin, Ethereum does not have a fixed total supply.
The network can technically create as many ETH tokens as required, which is often pointed out as a weak point.
Remember, the more scarce something is, often the more valuable it becomes. Having a fixed total supply builds scarcity into the network as a standard.
To get around this flaw, the Ethereum network implemented a burn function to its payments system, that takes the ETH fees from each and every transaction it processes - and destroys it.
The idea being:
The more transactions are run on the network → the more ETH tokens are burned → the scarcer ETH becomes.
Add to that the fact that, as of right now, 9% of all ETH is locked up for 12 months or more in staking accounts, and when The Merge upgrade happens, it's estimated that number will rise to ~30%.
Burning mechanism + 30% of ETH staked & unavailable = high scarcity (and hopefully higher prices).
Will this theory play out in reality?
No idea - all we know is we had a bunch of fun learning about it.
(And we hope you did too!)