The Growing Case for Ethereum as a Treasury Reserve Asset

Bitcoin has rightfully stolen all the headlines as the go-to treasury asset of choice, and corporations are actively adding it to their balance sheets. Michael Saylor started the trend by buying $2.1 Billion worth of Bitcoin while Elon Musk and Tesla followed closely with a 1.5 Billion dollar bet of their own.

While there is no denying that Bitcoin is king, Ethereum has quietly matured into a treasury reserve asset of its own.

When you take a step back and look at the progress that the blockchain industry has made due to Ethereum, it becomes risky not to have exposure to ETH. Ethereum leads all innovation in the digital assets world and has an unmatched upside other projects don’t.

There are already several corporations buying Ethereum as an inflationary hedge. For example, Meitu, a Chinese software company, purchased $22 million ETH for their reserve. Grayscale also continues to buy and take ETH off of the market. 

 

Ethereum does have an opportunity to flip Bitcoin due to its disruptive effect on the blockchain industry and traditional legacy finance tools with Defi. While the opportunity for this to happen is currently small, it grows with every passing day as Ethereum continues to scale, having settled $2 trillion in transactions over the last year.

 

 

Bitcoins scarcity is the primary feature, and many would point to Ethereum’s infinite supply as a reason it doesn’t belong on balance sheets. However, the launch of EIP 1559 in July will solve scarcity and also accelerate scaling.

Additionally, new layer 2 solutions that use applications off of the blockchain accelerate transactions on Ethereum.

To better understand why Ethereum belongs on your balance sheet, let’s break down its impact on the markets throughout its history up to today. There are a few things that Ethereum does better than any other project that adds to its value.

It disrupts, creates use cases, facilitates mass adoption, and drives innovation better than Bitcoin or other smart contract platforms.

While Bitcoin is a solid, proven treasury reserve asset, ETH has proven to be the same while also increasing its upside with each passing day. Not having exposure is extremely risky, which is why Two Prime uses both to manage risk for their treasury and clients portfolios.

After reading this, you’ll suddenly realize that ETH could very well be undervalued at current prices and has an upside potential not enough investors are currently aware of.

 

Ethereum Leads Innovation and Disruption in Digital Assets

 

Ethereum has a history of creating accidental speculative mania with the launch of its new apps. While many investors will look down on this, it’s essential to look at its effect on the markets. Price action is the organic marketing mechanism of digital assets. When the price goes up, the media creates articles with hyperbolic headlines.

We’ve all seen it, and despite not wanting to click, sometimes we can’t help it. When the price rises, the clicks raise awareness and create an organic marketing campaign that would make any advertising agency jealous.

These articles get clicks, social shares and creates discussion.

As price rises, an army of speculators descend upon exchanges and buy ETH as much as they can. They then turn around and loudly proclaim their genius on social media and tell all their friends.

Speculation continues until the price corrects and we enter a bear market. As the price drops, the speculators scatter, leaving the people who want to make a difference. They are the investors, marketers, and developers who want to advance the space.

With them, they bring innovations and build new tools that are leveraged to scale. Below I’ve highlighted some of Ethereums most significant achievements and the impact it had on the markets.

 

Initial Coin Offering (ICO)

 

An initial coin offering (ICO) is the equivalent to an initial public offering (IPO) but on the Ethereum network. An ICO is a fundraising mechanism that allowed projects to raise millions (and sometimes billions) over minutes. Suddenly blockchain projects had access to capital anywhere in the world without knowing who the investors were. 

ICOs fueled the bull run of 2016 – 2017 that was primarily retail-driven. Suddenly the retail demographic could bypass the traditional accredited investor requirements and buy a piece of a blockchain company.

The biggest ICO ever was EOS which raised $4.1 Billion in June 2018. Several other ICOs, such as Tezos, Filecoin, Hyundai, and Huobi, raised $250+ million between 2017 – 2019.

While many ICOs proved to be scams, the positive impact they had on the market is clear. It brought new talent into the space while also tightening up the regulatory framework.  True believers in Ethereum and blockchain welcome regulatory framework because it legitimizes their work and makes it easier to raise money for other projects.

More than anything, ICOs brought capital to the Ethereum community which lead to growth. Growth then leads to awareness which results in mass adoption. Some of the sharpest investors in the world are now paying attention to the blockchain ecosystem.

As more capital pours into Ethereum, the price action will become less volatile, solidifying it as a treasury reserve asset.

 

Decentralized Finance (Defi)

 

One of the biggest hopes was that Bitcoin would make money and payments universally accessible to anyone no matter where they were in the world. Bitcoin does a great job of raising awareness for inefficiencies in the financial system.

Bitcoin hasn’t quite lived up to its initial promise as it solidifies its role as digital gold. This is where Decentralized Finance (Defi) comes into play, a set of tools built on top of Ethereum.

Decentralized Finance (Defi) exploded onto the scene in the summer of 2020. Defi is essentially a movement rebuilding current financial services using Ethereum as the building block. When you look at the top ten digital asset products by fees produced, most are Defi applications born out of the Ethereum blockchain.

Ethereum is #1 while Bitcoin is #2.

No one wants to pay fees, but fees signal regular use.

While Bitcoin busted through the doors for decentralization, Ethereum is paving a path to decentralization. Again, like ICOs, some of these projects are speculative and will disappear. However, you can’t deny the market’s effectiveness and the innovation that springs out of it.

While not everyone can get a bank account or qualify for a loan, they will soon be able to use Defi to do the same. Creating Defi tools that make banking and finance more accessible creates more use cases, leading to mass adoption.

Ethereum leads all blockchains in disruption, Innovation, awareness, and mass adoption. Rinse and repeat. No blockchain does this better than Ethereum. The price action is simply what happens in between this process.

 

Non-Fungible Token (NFT)

 

The NFT boom is just getting started, and while most people are calling it a scam, there’s more to this story than meets the eye. Like ICOs before it, NFTs are a magnet for speculators looking to make a quick buck, and most digital asset investors are embarrassed to be associated with them.

However, the impact it’s having on the more significant market is clear. NFTs are driving awareness and mass adoption at a scale never before seen in blockchain technology. Now people are using Ethereum without even realizing it or having to understand it.

When you look back at the history of money or any technology for that matter, speculation is a part of the process. An excellent example of this is cereal. 

Cereal was created by Dr. John Harvey Kellog, one of America’s first wellness gurus. The crazy part is that it was by complete accident. During the industrial revolution, people didn’t have time to eat breakfast. There were no refrigerators, so choices were limited. Kellog and his brother created cereal at their sanitarium to help crazy people get better.

One of Kellogs patients stole the secret recipe and started raking in millions for solving the breakfast dilemma, which leads to a frenzy.

There were no marketing regulations at the time so that every company could claim their cereal would cure you of all sorts of diseases like cancer. While the cereal boom was full of speculators, cereal still exists to this day but with different iterations. The same thing is happening with NFTs, but what in the world is an NFT?

A Non-fungible token is a unique digital asset stored on a blockchain. Each NFT has a unique signature and is verifiable on whatever blockchain it’s hosted on. If you’re a digital marketer, artist, or creator of any sort, you’ll have a better understanding of how important this is.

It allows creators to control their destinies and cut out intermediaries. NFTs create an organizational structure to a digital world. They’re digital building blocks.

While most NFTs, like most ICOs, will prove to be worthless, it’s the concept that will withstand the test of time. An NFT by digital artist Beeple just sold for $69 million and was purchased by Justin Sun of Tron.

The biggest NFT marketplaces are Opensea.io and Dappradar; both built on top of the Ethereum blockchain. Millions of people are now using Ethereum and blockchain technology without even knowing it because they’re minting, trading, and selling NFTs.

 

Ethereum Gas Fees Signal Sky High Demand

 

As NFTs are hitting the mainstream and exploding in popularity, there are many complaints about the Ethereum blockchain fees. Fees are making Ethereum nearly unusable. Many say that competitors such as Cardano, Polka Dot, and Eos will eventually take over as the go-to smart contract platform.

However, fees signal demand as the cost goes up as more people use the Ethereum network. Early adopters are paying more and have skin in the game, and gain access to high-yielding Defi products and NFT market places. 

The important factor to understand is that the fee issue will be solved very soon. Again, keep in mind that this is an evolving network with the brightest developers in the world. They have found a way to scale up to this point and they will find a way to scale past it.

Scaling and Scarcity is Coming

 

The biggest hang-up for investors or corporations who want to buy Ethereum is it’s an infinite supply. Corporations can justify the purchase of Bitcoin because there will only ever be 21 million in existence. Additionally, there are roughly 20% lost forever.

However, with Ethereum, the supply is 112 million, with more being minted every year. That’s all about to change with EIP 1559EIP 1559 is a proposal to reform the Ethereum fee market. 

Scaling is also something that detractors point to with Ethereum. Over the past year, Ethereum has settled $2 trillion in transactions, which points to scaling.

However, layer 2 solutions are being developed off the blockchain to help scale the blockchain. Like your website, email, and DNS are separately hosted, the same will go for layer 2 solutions and Ethereum.

This is a standard solution in computer science, and it’s no different with digital assets.

 

Ethereum Development Community

 

Technology is only as good as the people who build and maintain it. In the case of Ethereum, they have 4x more developers than any other crypto ecosystem, and it’s growing by the day. When most investors assess the project’s value, they forget to add the development community to the equation.

Ethereum is stealing development talent away from big tech companies. There is a lack of great developer talent while demand is sky-high and with an already built out community, there’s no reason for engineers to look elsewhere.

Developers need a playground to build, deploy, and break stuff. If that doesn’t exist then talent will look elsewhere.

 

Ethereum isn’t a World Computer – It’s a Decentralized world economy

 

When Ethereum was first created, it was touted as a world computer where you could build apps that would run forever. However, I would argue that it’s become more of a world economy than a world computer.

Ethereum is built at the intersection of economics, computer science, decentralization. It runs more like an economy with ETH as its native currency. There are certain rules coded into smart contracts that don’t execute unless they are met. 

When major changes need to be made, the community bands together, make decisions and executes them.

If the market is still valuing Ethereum as a world computer, it’s undervalued because it’s more of a world economy. Take a step back and re-read that and consider the implications of a development community scaling an economy the world could use.

The supposed scaling issue seems small and the feat they’ve achieved up to this point is all the more impressive.

 

Canada Approves 3 Ethereum ETFs

 

Three ether (ETH) exchange-traded funds(ETFs) began trading on the Toronto Stock Exchange on April 20th, 2021. ETFs provide exposure to the price of ETH without having to purchase it outright. This is a clear signal of rising institutional demand and will likely open the door for the USA to do the same in the near future.

 

Is Ethereum a better treasury Reserve Asset than Bitcoin?

 

Corporations continue to purchase ETH for their treasury reserves but it’s not as publicized as Bitcoin. Meitu, a Chinese software company, has $50 million worth of ETH on its balance sheet. It’s easier for tech companies to understand Ethereum and we expect more corporations to soon follow Meitus’s lead.

Ethereum has more use cases than Bitcoin, can handle more transactions and continues to innovate at an accelerated pace. It’s also indirectly responsible for fueling the last 2 bull runs by igniting speculative mania with its monetary tools. When the mania subsides, the best innovators and developers remain and push the network forward. Additionally, ETH is required to use the Ethereum platform, and with the release of EIP 1559, scarcity is going to be baked into its code.

Lastly, data suggests that ETH is moving off of exchanges to be held for the long term. 

Staking protocols, where you have to lend your ETH and earn yield for 2 years, will take even more off the market. Interestingly enough, Bitcoin exchange outflows continue to fluctuate while ETH has steadily left.

There’s a reason Two Prime maintains exposure to both Bitcoin and ETH – It’s because we believe both are viable treasury reserve assets. The big difference is that the Ethereum network continues to innovate, which adds an upside to ETH that Bitcoin can’t match.