BlackRock, the world’s largest asset manager, created a bitcoin exchange-traded fund (ETF) in January 2024, effectively opening up the asset to institutional investment. Since then, these large investors have been buying roughly five times the amount of bitcoin that has been minted over this same period.
Now something similar is happening with ethereum, the second-largest cryptocurrency by market cap.
Ethereum pioneered smart contracts, which makes it possible for digital contracts (agreements) to execute and finalise based on computer code instead of requiring banks or lawyers to validate them. Smart contracts power most of the new decentralised digital finance world, where people can lend, borrow and trade without traditional banks.
Despite ethereum being the biggest player in this space, and a pioneer that’s also one of the most trusted by large traditional institutions, it’s had a sleepy few years. If crypto value follows utility, in the same way that stock prices follow successful companies, there’s arguably been a discrepancy between ethereum’s potential and its value.
As EY’s blockchain lead Paul Brody argued in a recent column, “Windows has been the winner on the desktop since 1984. IBM has won the data centre since 1964. I’m willing to bet that ethereum will still be the world’s pre-eminent blockchain ecosystem in 50 years.”
And here’s where it gets interesting.
After the success of bitcoin’s ETF and company treasury strategies, where companies load their balance sheets with bitcoin, there has also been momentum in institutional investments into investment funds that track ethereum’s price, with companies recognising ethereum’s long-term value and applying the same treasury playbook.
SharpLink Gaming in the US is the latest to pursue this strategy, which goes along the lines of: as an ethereum treasury company, you buy as much ethereum as you can get your hands on, raising money by selling equity and through other means, and turning this capital into ethereum.
It’s effectively placing a bet on the long-term success of the technology by making it a really big part of your business strategy. Traditional investors who want indirect exposure to ethereum can now buy SharpLink Gaming shares without owning any actual ethereum.
In turn, the heightened interest from this new group of investors could push up the price of SharpLink Gaming’s stock, creating a feedback loop that, in theory, benefits both the company and ethereum itself.
A few companies have now started doing this, and these aren't small players. What this means for ethereum is that very large buyers have now entered the arena. Consider that SharpLink holds more than 360,000 ethereum, valued at $1.34bn at current prices.
When institutional money moves into any asset class, it typically brings upward price pressure, which is what happened with bitcoin when the ETFs launched.
Here’s the kicker: Bitwise, a crypto asset manager in the US, ran the numbers and found that since May this year, ethereum exchange-traded products (ETPs) and public companies have bought about 2.83m ethereum, which means that buying is occurring 32 times faster than new ethereum is entering circulation.
To put it into perspective, imagine if stock buyers were purchasing shares 32 times faster than companies could issue new ones. The price of ethereum is up about 49% since mid-May, and roughly 60% since June, a significant development worth keeping an eye on.
De Wit is South Africa country manager at Luno
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