Analysis: Listed companies are crazy about buying Bitcoin, why don’t they love Ethereum? Will Institutions Be the New Pillar of Ethereum?

Since March, Meitu has accumulated net purchases of cryptocurrencies worth approximately US$90 million, including 31,000 Ethereum, worth more than Bitcoin. Cai Wensheng, the founder of Meitu, said that Meitu is the first listed company in the world to use Ethereum as a currency value reserve.

As we all know, the current round of bull market has two major boosts, one is from the purchase of Bitcoin by institutions; the other is from the overall rise of the Ethereum DeFi ecosystem. So, is it possible that institutions will also start to recognize Ethereum in the future?

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Ethereum is more volatile than Bitcoin

In fact, among the many listed companies in the United States, only a handful have bought Bitcoin. The reason why listed companies do not buy bitcoins is that, in addition to compliance requirements, the price of bitcoins is too volatile. From the perspective of cash management, a company is often unwilling to hold bitcoins that are too volatile. big asset.

However, the price of Ethereum is more volatile than Bitcoin. There are three main reasons for this volatility:

1. The liquidity of Bitcoin is better than that of Ethereum. According to the data of bitinfocharts, the value of assets sent on the chain of Bitcoin every day is 33.6 billion US dollars, while that of Ethereum is 4.3 billion US dollars, which is only about eight percent of that of Bitcoin. One, lower liquidity brings higher volatility.

2. Compared with Bitcoin, the distribution of Ethereum is not even enough. According to the [report](1) released by the analysis company Santiment, in the Ethereum network, the total wealth of wallets holding more than 10,000 ETH accounts for 68% of the total amount of Ethereum. Such a distribution makes the price of Ethereum even higher. Higher volatility due to vulnerability to giant whales;

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Ethereum's 'store of value' attributes less prominent than Bitcoin

Compared with the total amount of 21 million Bitcoins, Ethereum does not limit its total amount. Now its annual inflation rate is about 4%, and it will continue to decrease in the future. Although the growth rate of Ethereum will gradually decrease, it is still not as popular as Bitcoin's way of limiting the total amount.

Of course, even if there is no upper limit on the total amount, it does not prevent Ethereum from being used as a value store. However, compared to Bitcoin, Ethereum's network is not "stable" enough. Since its inception, Bitcoin has never undergone large-scale upgrades. Even though some expansion requirements have been abandoned, the overall stability of the network has been guaranteed. Such stability undoubtedly gives investors confidence. The same is true for gold in the traditional value storage method. Despite the inconvenience of storage and trading, gold, as an extremely difficult metal to be corroded, has made it the best value storage method for thousands of years.

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Impact of future upgrades

For Ethereum, the most interesting upgrades are undoubtedly the upgrades of EIP-1559 and ETH2.0. From the starting point, these are undoubtedly for the better development of Ethereum in the long run, but in the short term, it may bring certain concerns to potential institutional investors.

For EIP-1559, its original intention is to reduce the high transfer fees of the Ethereum network. At the same time, by destroying transaction fees, it can also reduce the supply of Ethereum and increase its value in the long run , but this proposal has attracted opposition from large mining pools with considerable computing power, which has brought certain uncertainties to the upgrade, and will naturally bring potential concerns to institutions that want to invest.

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Possibility of future institutional investment

In the long run, since Bitcoin will basically not undergo major upgrades, its performance cannot be further improved, so its future imagination can only focus on value storage, and Ethereum, as a global decentralized Intelligent computing platform, the imagination space is much larger. DeFi based on Ethereum has changed the financial industry to some extent. In the long run, it may penetrate into various fields and promote its demand, thereby pushing up prices. As prices increase, liquidity and The problem of volatility will be solved accordingly.

The activation of EIP-1559 and the conversion of ETH2.0, after dispelling investors' doubts, will also greatly improve the performance of the Ethereum network, which can theoretically accommodate more users. During this period, Ethereum’s financial derivatives will also be launched step by step. After these basic conditions are met, when future listed companies consider digital currency investment, in addition to Bitcoin, there is a high probability that they will be like Meitu. Also consider investing in Ethereum. Especially some more radical institutions and listed companies may choose Ethereum, a product with higher return on investment and higher risk.

[1]:https://twitter.com/santimentfeed/status/1368397797263896582