Crypto analytics firm Chainalysis has suggested that the price of Ether (ETH) could decouple from other cryptoassets after the merger, with stake returns potentially driving strong institutional adoption.
In a Wednesday report, Chainalysis explained that the upcoming Ethereum upgrade will introduce institutional investors to bet returns similar to certain instruments such as bonds and commodities, while being much more environmentally friendly.
The report said that ETH stakes are expected to offer annual returns of 10-15% for stakers, thus making ETH an “alluring bond alternative for institutional investors”[ads1]; considering that yields on government bonds offer much less compared to
“Ether’s price may decouple from other cryptocurrencies after The Merge, as the stake rewards will make it similar to an instrument like a bond or commodity with a carry premium.”
According to Chainalysis data, the number of institutional ETH players – those who have staked $1 million or more of ETH – has “steadily increased” from under 200 in January 2021 to around 1,100 in August this year.
The firm notes that if this number increases at a faster rate after The Merge, this should confirm the hypothesis that institutional investors “actually see Ethereum betting as a good return-generating strategy.”
The Chainalysis report also tips ETH to draw in more retail and institutional traders after The Merge, as the upcoming upgrade will make stakes a much more attractive investment tool.
The ETH currently staked is locked in a smart contract that cannot be withdrawn until the Shanghai upgrade comes around six to 12 months after the merger goes through.
As such, the staking ETH market is currently illiquid, resulting in some staking service providers offering synthetic assets that represent the value of the staking Ether, but the downside is that “these synthetics do not always maintain a 1:1 peg,” claims solid.
“The Shanghai Upgrade […] will allow users to withdraw staked Ether at will, which provides more liquidity for players and makes betting a more attractive offer overall, the report states.
Related: Binance US Launches Low Barrier Ethereum Staking Ahead of The Merge
Another factor highlighted is that the Ethereum blockchain’s proof-of-stake (PoS) transition will see energy consumption requirements drop by as much as 99% after the upgrade, according to the Ethereum Foundation:
“The transition to PoS will also make Ethereum more environmentally friendly, which may make investors with sustainability commitments more comfortable with the asset. This is especially true for institutional investors.”
ConsenSys, the firm behind the MetaMask wallet and founded by Ethereum founder Joseph Lubin, also published a similar report looking at “the impact of the merger on institutions” this week.
The report echoes similar sentiments regarding ETH stake rewards and environmental sustainability attracting institutions, but also highlights the importance of the PoS Ethereum chain “producing stronger security guarantees for institutional investors” along with ETH’s potential to become a deflationary asset:
“Reduced ETH issuance and increased burns will systematically reduce ETH supply – and put deflationary pressure on ETH, thereby alleviating institutional concerns about the token price falling to zero, and increasing the likelihood of a value increase.”