The merger has finally happened, and while bitcoin remains the cryptocurrency of choice for institutions (and one nation-state, El Salvador), Ethereum’s new consensus mechanism – and the scalability that supposedly comes with it – may attract some interest from the larger, older brother as the bitter cold of cryptowinter continues.
Still, institutions may be hesitant to jump all into the ether. One reason is regulatory uncertainty. US Securities and Exchange Commission Chairman Gary Gensler said proof-of-stake cryptocurrencies could be considered securities, though the regulator said he was not talking about specific coins. Nevertheless, his comments helped boost Ether’s price on Thursday.
Meanwhile, it appears that if there were flows from bitcoin to ether, many of them stopped with the start of the Merger.
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At the start of the day – September 15 – when the Merger took place, ether was trading for around 0.0817 BTC on Binance, according to data from TradingView. Fifteen hours later, it was changing hands at 0.0746 BTC and continued to fall.
Read more: The Ethereum merger is complete, ushering in a new era for the second largest blockchain
This is a depressing chart, one might think. Except that’s only five days of data.
Let’s take a step back and see how ether has traded against bitcoin since the first days of the former’s life.
The bottom of the Beacon chain and other proportions
The Beacon Chain, which Ethereum eventually merged with, was launched on December 1, 2020. At the time, Ether cost 0.0313 BTC. So it has more than doubled in value since then.
However, this says nothing about institutional interest. After all, prices can move based entirely on retail interest.
Trying to measure institutional interest can be a bit tricky. For example, the use of futures volumes is not as straightforward as one might expect. We’ve seen that, relative to dollar volume, ether futures have regularly outperformed bitcoin futures since July, according to data from Skew.com, although it has taken a hit recently.
This doesn’t tell us much about institutions because some of the exchanges Skew uses for data serve retail investors with a high risk tolerance.
There is at least one futures contract, of course, that can be a good proxy for Wall Street’s interest and that is the CME. The volume ratio between the two cryptocurrencies is very different:
The CME’s ratio of ether to bitcoin futures is arguably all over the place, but it’s clear that the dollar volumes for ether contracts on the CME have yet to surpass that of bitcoin futures.
Read more: Ethereum Merger Linked Ether Futures Activity to Bet on Returns, Traders Say
In the spot market, however, the exchanges themselves can get a sense of the players interested in a currency.
“In terms of volume growth in ETH this week, it’s actually been led by institutions, and that’s a significant part of our trading,” Bitstamp USA CEO Bobby Zagotta said on CoinDesk TV’s “First Mover” program on Friday. There was “about a 56% increase in volume from institutions versus, I think, [a] 35% increase in volume from retail users”.
Much of that, Zagotta said, could be attributed to investors “selling the news” on the success of the Merger.
Quiet before the rally?
Meanwhile, ether’s price drop didn’t just happen against bitcoin. it also happened against the US dollar. While the drop disappointed HODLers last week, there are those who aren’t ruling out the possibility of massive setbacks.
Matthew Sigel, head of digital asset research at VanEck, likens ether’s performance against the USD after the merger to what happened to bitcoin after major changes.
“There are many examples of major crypto developments, including bitcoin halvings, where the price traded in a range for weeks or months,” Sigel said on CoinDesk TV’s “First Mover” program Thursday. “It just takes a significant stakeholder to decide to buy after some stability in the network. This could take days, weeks, months – who knows?’
Read more: SEC’s Gensler Signals Extra Scrutiny for Proof-of-Stake Cryptocurrencies: Report
Sigel, who has a five-year price target for ether of $8,000, noted that four times more ETH was staked on the Ethereum network in the six hours after the merger than in the entire history of the Beacon Chain before.
“It seems pretty clear that those in the markets are now making the decision to commit and lock in that liquidity,” he said. “This is probably a trend that will continue over time, so the early results are, I think, quite encouraging despite the price action.”