The Fintech Files: Why Ethereum’s Merger Matters to Institutional Investors
Cryptoland is approaching one of the most significant moments in its short history. That could make the sector even more enticing for banks and asset managers, many of whom have already poured large amounts of resources into it.
Ethereum is getting a software update that will see it abandon the energy-intensive crypto-mining process it has used since it went public in 2015 — one where powerful computers solve puzzles to create tokens and power the network.
Instead, it’s getting leaner and greener, adopting a new proof-of-stake mechanism (which uses less computing power) to create new coins, in a process that’s been called the ethereum merger.
Why should I care?
If you’re an institutional investor, there’s one main reason: energy consumption.
Banks like Goldman Sachs already trade some bonds and other debt securities for clients on the ethereum network, and it is becoming 99% more environmentally efficient. Given the fact that ethereum uses about the same amount of electricity as the Netherlands every year, that’s a big deal.
In fact, trading ethereum will use no more energy than a regular stock, eliminating one of the biggest concerns when it comes to investing in the token or network: that it is an ESG liability.
Last year, a report by $125 billion fund manager Candriam said crypto investing was doing “severe damage” to investors’ ESG credibility.
Meanwhile, the merger will also see the supply of new ethereum coming to market fall by as much as 88%, according to Bytetree Asset Management estimates, making it less inflationary than bitcoin.
Third, the new staking mechanism makes the investors the ones validating ethereum tokens on the network, instead of the supercomputers.
This is “an important consideration for the long-term development of crypto as an alternative financial system, as it underpins the universe with a benchmark rate,” said Bytetree CEO Charlie Erith.
He added: “These factors are big ticks for the institutional investor. A successful merger can catalyze the space and the market is waking up to this.”
Ethereum stood at $1,594 on August 23, up 60% from its June low, amid investor optimism surrounding the merger.
For a more in-depth explanation of exactly how it all works, read this.
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In June, Financial news revealed that prominent crypto investor Christopher Harborne had made a £500,000 donation to the Conservative Party earlier in 2022.
Months after that donation, then-Chancellor Rishi Sunak positioned the UK as a “global hub” for the industry, saying the UK was “open to crypto businesses”.
The Conservative Party denied any link between donations and government policy.
Financial news filed a Freedom of Information Act request asking for minutes of all meetings between Harborne and finance ministers, and copies of correspondence between Harborne and Sunak himself.
The Treasury initially declined to confirm or deny whether it had any relevant details. After an appeal, it has now confirmed that it does not actually have any documents on the matter.
There can be only one conclusion: Harborne must have made the donation out of the kindness of his own heart.
Would you work in the metaverse?
Laptop? Check. Work phone? Check. Virtual reality glasses? Wait…
While the metaverse has not yet permeated working life in the financial sector in a big way, many big names are betting that it will. The likes of JPMorgan, Accenture, HSBC and CBRE – to name a few – have already established corporate outposts in the virtual world.
But one of the sector’s biggest developers – and JPMorgan’s metaverse landlord – believes virtual offices are a waste of time.
Janine Yorio, CEO of metaverse developer and investment fund Everyrealm, said United Nations that most virtual workspaces are part of “marketing gimmicks” and do not have “a clear path to benefit”.
“A lot of companies have done that,” she said. “The truth is, nobody cares.”
Instead, the Everyrealm boss believes that metaverse real estate is better suited to play, not work, with casinos and gaming environments at its center.
Yorio said: “We can hardly get people to come to the office in real life. Why would people spend time pretending to be there?”
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Chris Dixon, founder of Andreessen Horowitz’s crypto arm, has told Financial Times that the digital assets sector will break up the excessive concentration of power held by Big Tech.
Meanwhile, FTX’s revenue rose more than 1,000% from $89 million to $1.02 billion in 2021, according to documents leaked to CNBC.
…and Decrypt has an overview of Australia’s approach to crypto. Regulators down under think they are trying to go where no government has gone before – here’s why.
The last word
Most asset managers now have “someone dedicated to looking at crypto, or a small team working on it,” according to Hector McNeil, a former WisdomTree executive who now runs exchange-traded fund platform HanETF.
So this got us thinking: who’s still hanging on, and why? If you work for an asset manager that does not have anyone working with crypto, we’d love to hear from you.
Get in touch at [email protected].
To contact the author of this story with feedback or news, email Alex Daniel
