ethereum (eth) prices have been languishing below the $2,500 mark despite the strong performance of other cryptocurrencies such as Solana (SOL) and Cardano (ADA).
At ).
ETHE discount closing quickly
For example, the CEO pointed to the ETHE chart, whose discount has been steadily closing over the past few months of trading. Ahluwalia saw a 4% gain on December 22, narrowing the discount further.
According to the CEO's analysis, this development suggests that institutional investors, the majority of whom chose to purchase Grayscale's regulated ETHE product to gain regulated exposure to eth, are now choosing to purchase eth on the spot market, not through of derivatives. product.
This shift from ETHE to eth, Ahluwalia added, could be explained by the “cheaper to deliver” contract theory. In the derivatives market, this theory states that a derivatives product like ETHE is the cheapest way for institutional investors to gain exposure to the underlying asset, in this case, eth.
This is because the derivative in question, ETHE, is a futures contract that tracks the price of eth through a regulated exchange, in this case CME.
Will capital flow to spot ethereum and lift eth to $3,500?
Therefore, based on this theory, the CEO went on to say that it is likely that as the ETHE discount closes, marginal flows will go into eth's place to capture the staking return. For this reason, institutions are not likely to invest more funds in ETHE as “huge profits” are made.
As a proof-of-stake (POS) project, users can stake eth, which helps secure the network, and as compensation, ethereum distributes a return of around 4.3% to validators. These traders must lock at least 32 eth to validate a block of transactions and earn block fees. Since they have to bet, they also get a return.
As of December 22, there were more than 28.6 million eth staked, with a reward or yield rate of 4.32%, according to ethereum-2-0″ target=”_blank” rel=”noopener nofollow”>Gambling Rewards. Considering how staked amount and return are correlated, the more users choose to stake physical eth, the lower the reward or return rate will be.
This dynamic will now come into play as ETHE discounts close and institutions or large players rotate funds into eth via the spot market, possibly driving prices higher.
Looking at the eth price action on the daily chart, buyers have the upper hand. However, a comprehensive close above $2,400 could take eth to $2,500 and then $2,500 in a buying trend continuation pattern.
Featured image from Canva, TradingView chart
