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Recent global developments have brought the cryptocurrency sector to the fore as people around the world begin to question the decision-making process of governments and central banks.

Multiple statistics, such as the increasing amount of Ether (ETH) and Bitcoin (BTC) locked in DeFi, surging transaction and on-chain activity and top exchanges’ plummeting BTC and Ether reserves show that investors are becoming increasingly interested in cryptocurrency.

Data from CryptoQuant, an on-chain analytics company, shows that Ether (ETH) hit a new all-time high above $ 1,500 on February 2, the amount of Ether held on the reserves of all centralized exchanges continued to drop to new lows as token holders withdrew their coins.

Price vs. all ETH reserves on exchanges. Source: CryptoQuant

Many analysts believe that the fast-growing DeFi sector, the launch of Eth2 and the increasing participation of institutional investors are the main reasons for the decline of BTC and Ether on centralized exchanges.

The rise of DeFi and yield farming

Each week, the number of participants interacting with the DeFi sector seems to hit a new high, and as of Feb. 2, the total value trapped in DeFi platforms has reached $ 28.67 billion.

Total value locked in DeFi. Source: Defi Pulse

Data from Defi Pulse shows that most DeFi platforms are built on the Ethereum network and require Ether to transact with the protocol.

In addition to offering attractive ways to generate returns simply by lending Ether, an increasing portion of the available offering is focused on DeFi-related business and not available for trading purposes.

A similar phenomenon is occurring with BTC, as holders who want to participate in the DeFi space without selling their Bitcoin have packaged them in ERC-20 synthetic versions of Ether.

BTC balance in exchange wallets. Source: Glassnode

Platforms such as REN and BadgerDAO are at the forefront of this effort and a similar decline in the available Bitcoin supply could also help drive the price of BTC higher.

Eth2 and comprehensive lock-up strike

Since the launch of the Beacon chain on December 1, 2020, the Eth2 contract has enabled token holders to deploy their Ether in the new PoS contract by becoming validators for the network.

Data from the Eth2 Launch Pad shows that there are currently 2,907,298 Ether worth a total of $ 4.39 billion deployed on the network, yielding an estimated APR of 9.2%

Total ETH bet versus estimated APR. Source: Eth2 launch pad

The contract has a multi-year commitment, but for holders who refuse to bear the risk and volatility of DeFi revenue farming, Eth2 staking provides a way to earn revenue over time rather than tokens on exchanges or in cold to leave wallets in place.

Institutional investors are starting to see Ether’s value proposition

Since 2020, Bitcoin has received the lion’s share of the attention of the institutional investment crowd as investors like MicroStrategy CEO Michael Saylor lead the way by buying up immense sums of Bitcoin and tweeting non-stop about its estimated future value.

Now that Bitcoin is over a decade old and seen as more established, companies are increasingly open to seeking out the next great opportunity the cryptocurrency sector has to offer. With DeFi’s explosion and its current reliance on the Ethereum network, Ether is quickly becoming a recommended choice for institutional investors.

Investments in shades of gray temporarily closed their various cryptocurrencies rely on new investments in late December following the rise in Bitcoin’s price, but inflows resumed in early January and their total Ether holdings are up 242% over the past 3 months.

Grayscale Ethereum Trust ETH Holdings Over Time. Source: Investments in shades of gray

Coinbase also noted in its 2020 annual review that institutional investors are increasingly seeing Ether as a store of value, with “a growing number” of its institutional clients taking a position in the token due to the high returns on offer.

The exchange also noted that although a majority of their customers bought BTC in 2020, Ether outperformed BTC in terms of price growth due to its strong year-end growth and this is a trend that has continued into 2021.

Bitcoin and Ethereum YTD Performance. Source: Digital Asset Data-NYDIG

The continued growth of DeFi, the allure of the Eth2 contract and the increasing participation of institutional investors are all signs that the Eth price may continue to rise.