Ethereum recently surged to an all-time high in USD terms, climbing from below $2,100 two weeks ago to over $3,300. Although it broke its previous dollar-denominated record, it still hasn’t surpassed its previous high when priced in Bitcoin.
Last month, Bitcoin reached 3.2 times its peak price from the December 2017 bull market. So far, however, Ethereum's highest price remains only 2.4 times its January 2018 peak.
Ethereum's 2021 Surge: Retail vs. Institutional Investment
Ethereum’s strong performance in 2021 has been largely driven by retail investors. The explosive growth of NFTs brought new users and mainstream attention to the Ethereum network. As more investors entered the ecosystem, the total value locked in DeFi applications continued to reach new heights.
On-chain data supports the idea of growing retail participation. Since the beginning of the year, the number of addresses holding relatively small amounts of ETH (between 0.01 and 1 ETH) increased by approximately 3.8 million, bringing the total to over 13.6 million addresses. For context, back on May 4, 2018, there were only 3.8 million addresses containing between 0.01 and 1 ETH.
Ethereum’s 2017–2018 bull cycle was also largely fueled by retail investors. But there’s a major difference this time around: the growing participation of institutional investors. Since 2020, institutions have entered the cryptocurrency space at an unprecedented pace, contributing significantly to the market’s new highs in 2021.
Growing Institutional Interest in Ethereum
Although institutional investors have been actively accumulating Bitcoin, their adoption of Ethereum has been somewhat slower. That said, several signs suggest Ethereum is beginning to attract more institutional interest, especially as we move deeper into 2024.
The Chicago Mercantile Exchange (CME) is one of the primary venues through which institutional investors gain exposure to cryptocurrencies. Unlike most crypto exchanges, CME is regulated in the U.S. and has a long history in traditional derivatives, making it a trusted platform for institutional trading.
CME first launched Bitcoin futures in December 2017. However, it wasn’t until February 2021 that the exchange introduced Ethereum futures. Although trading volume for Ethereum futures on CME was relatively low in March, it surged significantly in April, reaching daily highs of over $500 million.
Despite this growth, Ethereum futures trading volume on CME remains considerably lower than that of Bitcoin. CME’s Bitcoin futures hit daily highs exceeding $6 billion earlier in 2021, though BTC volume peaked in late February. By contrast, Ethereum volumes only began setting new records in April and appear to still be climbing.
While institutions haven’t fully embraced Ethereum yet, it may not be long before the asset becomes more attractive to this influential group of investors.
Ethereum’s Improved Economic Model
Until recently, some institutional investors expressed concerns about Ethereum’s economic structure and its relatively high inflation rate compared to Bitcoin. However, upcoming upgrades—most notably EIP-1559—are addressing many of these concerns.
EIP-1559 is scheduled for release in July as part of the London hard fork. In addition to improving the user experience around gas fees, this proposal will burn a portion of ETH transaction fees. This will permanently remove a percentage of the supply from circulation and reduce Ethereum’s daily net issuance.
For example, historical estimates suggest that if EIP-1559 results in 75% of fees being burned, Ethereum’s net daily issuance could drop significantly—and could even turn negative during periods of extremely high network activity. It’s important to note that the exact percentage of fees to be burned is not yet known, but the overall impact is expected to be deflationary.
This change could bring Ethereum’s estimated annual inflation rate (based on a 30-day average) down to between 1% and 2%. This is only an estimate and will fluctuate depending on daily transaction volume and the actual burn rate. Still, overall, Ethereum’s inflation rate is expected to decrease substantially.
In addition to EIP-1559, other improvements are underway. The transition to Ethereum 2.0 and Proof-of-Stake will effectively turn ETH into a yield-generating asset. Already, over 4.1 million ETH have been locked in the Ethereum 2.0 staking contract. As platforms like Coinbase introduce ETH staking services, the amount of staked Ethereum is likely to increase further.
Layer 2 scaling solutions are also being rolled out. Aave recently integrated with Polygon (MATIC), which has already attracted over $2 billion in deposits. Other solutions, including Immutable X, are helping NFT platforms scale—a development that could attract even more retail investors.
If retail activity remains strong and more institutions begin entering the Ethereum market, ETH could very well maintain its position as the second-largest cryptocurrency by market cap throughout the rest of 2024.
Key Network Data and Insights
Ethereum’s market capitalization increased by 19.7% week-over-week as its price broke above $3,000 for the first time. However, the number of active ETH addresses declined slightly after reaching a record high of over 900,000 the previous week.
Bitcoin’s hash rate also increased by 8% over the week, recovering after a mid-April dip caused by power outages in Northwest China.
Noteworthy Network Trends
Due to continued growth in DeFi and unprecedented demand for block space, Ethereum transaction fees surged to new yearly highs in early 2021. However, despite high network usage, the average gas price in May fell to its lowest level since December 2020.
On April 22, Ethereum miners increased the gas limit per block to approximately 15 million. This means more space is available per block, which has helped bring down the average gas price.
The average number of transactions per block reached 246 on April 22—the highest level since January 2018. Since then, the average has remained above 213, which is still among the highest levels observed over the past two years.
Even as Ethereum’s price reached new all-time highs, the average transaction fee in USD terms dropped below $10.
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Frequently Asked Questions
What caused Ethereum’s recent price surge?
Ethereum’s price increase has been driven by a combination of strong retail interest, growing institutional adoption, and positive developments around network upgrades like EIP-1559 and Ethereum 2.0.
How does EIP-1559 affect Ethereum’s inflation?
EIP-1559 introduces a fee-burning mechanism that removes a portion of ETH from circulation with every transaction. This is expected to reduce net issuance and could even make Ethereum deflationary during high-usage periods.
Are institutions investing in Ethereum?
Yes, though institutional interest in Ethereum has historically lagged behind Bitcoin. Data from regulated derivatives markets like CME shows growing institutional trading activity in Ethereum futures.
What is the significance of Layer 2 solutions?
Layer 2 scaling solutions help reduce transaction costs and improve network throughput. This enhances Ethereum’s usability for DeFi and NFT applications, making it more attractive to both retail and institutional users.
How does staking work in Ethereum 2.0?
Ethereum is transitioning from Proof-of-Work to Proof-of-Stake. Users can stake ETH to help secure the network and earn rewards. Over 4.1 million ETH are already locked in the Eth2 staking contract.
Will Ethereum’s upgrades help it overtake Bitcoin?
While it’s unlikely Ethereum will surpass Bitcoin in market cap in the near term, these upgrades significantly improve Ethereum’s scalability, security, and economic model—strengthening its position as the leading smart contract platform.