Q1 2021 Industry Trends: Institutional Interest in ETH Ramps Up

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12 April 2021

Ether (ETH) had an outstanding first quarter in terms of performance, doubling in market capitalization and reaching a new all-time high price. Riding that momentum, ether prices have continued to soar, albeit in smaller daily increments, to reach several new all-time highs of close to $2,100 in recent days. 

What is equally noteworthy about ether’s performance this past quarter, outside of its price gains, is the institutional attention the crypto asset seems to be attracting and the market tools that have launched to support its trading as a derivatives product. 

On Feb. 8, the world’s largest financial derivatives exchange, the Chicago Mercantile Exchange, launched ether futures, opening the door for institutional and accredited investors in the U.S. to take leveraged directional bets on ETH and hedge against spot market positions. 

Read more: CME Ethereum Futures, Explained

Then, digital asset merchant bank Galaxy Digital launched an Ethereum fund for institutional investors and businesses wanting to invest in ether without buying or holding any of the underlying asset. Called the “Galaxy Institutional Ethereum Fund,” this product launched on Feb. 19 has raised $32 million as of March. 

An Influx of ETH-Based Investment Products
Source: CoinDesk Research

More recently, on March 25, staking-as-a-service provider Staked introduced an ETH investment product known as the “Staked ETH Trust.” It gives accredited investors exposure on the price of ether as well as rewards earned on Ethereum 2.0.

Then there’s Ethereum 2.0, a parallel blockchain running alongside Ethereum that issues small amounts of ETH to network stakeholders known as “validators.” Protocol developers envision merging the two networks over the next couple of years. 

Gauging market sophistication

As the number of investment products for ether has grown in Q1 2021, so, too, has the size and activity of the ether derivatives market as a whole. 

The ether options market, while less mature than the bitcoin options market, has grown rapidly nonetheless over the past three months. Aggregate open interest for ether options products on non-U.S. regulated exchanges reached all-time highs of $3 billion at the end of Q1 2021, compared to a mere $27 million at the end of the previous quarter.

ETH Options Trading Volume and Open Interest
Source: Skew

Because options markets tend to develop after futures markets start to mature, it’s an area of trading that should be watched to see if deep-pocketed, institutional players jump into the ether investment waters.

Read more: Crypto Options Trading, Explained

For now, ether’s derivatives markets are much smaller and thinner than those of bitcoin but they are maturing rapidly. This is evidenced by the growth of ETH derivatives trading volumes and open interest in Q1 2021, as well as new investment products launched in the same period for institutions and accredited investors. 

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