If the 2020 Q1 was the quarter of market turmoil, Q2 the bitcoin halving and Q3 the explosion of stablecoins and decentralized finance applications, Q4 was the quarter of institutional FOMO for bitcoin and of Ethereum launching the first phase of its ambitious migration to a proof-of-stake (PoS) blockchain.

The latest CoinDesk Quarterly Review looks at the data and timelines behind these two strong narratives, and what they mean for asset prices.

While the 2017 bitcoin rally was largely driven by retail frenzy, the 2020 rally was driven mainly by institutions. The accelerating rhythm of large institutional investors publicly talking about and investing in bitcoin as a portfolio asset has not only lent validation to bitcoin’s role in portfolios, it has also attracted the attention of other investors. This self-reinforcing loop is likely to continue into 2021, especially given the mounting uncertainty around currencies and inflation.

Bitcoin’s strong rally in the last few days of December crowned an already strong year and produced an annual performance of 300%, way ahead of most macro assets, although behind ETH’s spectacular 470%.

One metric that hints at growing institutional involvement is the number of addresses that hold large balances. The number of addresses with over 1000 BTC, known as "whales," is over 30% higher than at the end of 2017, the height of the last crypto bull run, indicating the growing presence of deeper pockets in the market.

Another indicator that institutional involvement in the bitcoin markets is growing is the volumes on the Chicago Mercantile Exchange (CME), an institution-focused derivatives exchange that offers bitcoin futures and options. The CME’s bitcoin futures open interest in U.S. dollars grew almost 300% over the quarter to become the largest in the industry (as of Dec. 30), having started the quarter in fifth position.

The Ethereum ecosystem saw strong progress in market infrastructure growth in the fourth quarter, and the long-awaited launch on Dec. 1 of Ethereum 2.0 was a major step on the way to migrating the ecosystem to a proof-of-stake blockchain.

Now that launch is successfully out of the way and Ethereum 2.0 developers are focusing their efforts on the task of onboarding several tens of thousands more validators onto the network. The goal is to have a minimum number of 262,144 validators securing Eth 2.0 before advancing to the next phase of development, phase 1. As of Wednesday, Jan. 6, 20% of this number have been onboarded.

Historically, peaks in the number of active accounts on Ethereum have coincided with market tops, but the latest price surge that tipped ETH past $1,100 for the first time since January 2018 was not mirrored by a surge in the number of active accounts. The number of active accounts has been trending upwards but is still roughly 33% lower than its peak of 714,225 reached back in 2018, when ETH price was nearing $1,400. This indicates the latest ETH price bull run may be fueled more by market speculation and less by a growth in real user activity and adoption.

Not all Ethereum transactions involve transfers of ETH. They could involve transfers of ERC-20 and ERC-721 tokens, which are crypto assets created for unique applications and use cases on top of Ethereum. What’s more, not all Ethereum transactions are initiated by users. Some are initiated automatically by a smart contract, which is the code dictating the functionality behind all decentralized applications (dapps). This year, the total amount of ETH transferred by smart contracts as opposed to users doubled from its previous all-time high reached in 2016. This is a bullish indicator of Ethereum’s growing use case as a dapp platform rather than as a network for transfers of value.

For more charts and insights on developments in crypto asset markets in Q4 2020, download our free report here.