The big crypto turnaround: can Ethereum overtake Bitcoin?

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Ethereum’s rise to the top of the cryptovers seems unstoppable, Nigel Green said in mid-August, and it’s not hard to see why the CEO of deVere thinks so. DeFi is on a tear, NFTs are multiplying, Ethereum (ETH) remains more scalable than Bitcoin (BTC), and it also offers more uses, including smart contracts. Additionally, Ethereum will soon switch to a Proof of Stake (PoS) consensus algorithm, which appears to be more environmentally friendly than Bitcoin’s power-hungry Proof of Work (PoW) protocol.

Ethereum is already years ahead of Bitcoin in everything but price and fame, Green said earlier this year, adding: There is a real feeling that 2021 is the year for Ether. His hour has come. But, is it really inevitable that the world’s first, largest and best-known cryptocurrency is ready to give up its crown of market capitalization? Maybe not.

If you look at the homepage of CoinMarketCaps over the past five years, Ethereum is generally in second place, just below Bitcoin and it really hasn’t moved from that second place permanently since its launch, Molly Jane Zuckerman, head of content at CoinMarketCap, Cointelegraph said, adding: History shows us that there is only one cryptocurrency that can claim the king of the cryptoverse title.

So, is there any chance of reversing the term often used to describe an ETH and BTC reversal? Are altcoins still benefiting from the light shining on Bitcoin or are they coming out and becoming popular on their own? Ultimately, can the two even be compared since they are seen to serve different purposes within the crypto and the wider financial space?

Not a done deal

The eventual dominance of Ethereum is not a sure thing, commented Eswar Prasad, professor of economics at Cornell University and author of the soon to be published book, The Future of Money. There could be technical complications with Ethereum’s move to the PoS consensus protocol, and there are many risks of attacks on DeFi products that could undermine trust in those products and in Ethereum itself, he said. he told Cointelegraph.

Still, Bitcoin has not proven to be an efficient medium of exchange, Prasad added, and its blockchain has only limited functionality compared to Ethereum, especially when it comes to decentralized finance (DeFi): Ethereum. offers more flexibility, especially for DeFi products and services, and it has the potential to become a viable and efficient medium of exchange, providing both low latency and high throughput for transactions.

Maybe Green went a little too far, suggested Lee Smales, associate professor of finance at the University of Western Australia. Inevitable is a strong word, after all, he told Cointelegraph, but I would say it’s highly likely to happen although Bitcoin’s recent rally has overtaken Ethereum’s and perhaps has a little delayed timing. I would suspect [flippening] will happen in the next two or three years.

So, how long?

Many seem to bet on Ethereum and the question often is: not if but when? Ether could overtake Bitcoin as the crypto world’s largest store of value in the coming years, Goldman Sachs analysts said in July, while deVeres Green estimated the turnaround was likely within five years.

I think it will be difficult for ETH to return Bitcoin anytime soon, Justin Hartzman, CEO and co-founder of Canada-based cryptocurrency exchange CoinSmart, told Cointelegraph. The following [BTC] the halving is in 2024, which will inevitably drive up the price. Additionally, keep in mind that Ethereum killers like Cardano and Tezos are coming in large numbers. If they work, they could siphon off a lot of potential market capitalization from the Ethereum prize pool. If the seat swap happens, I could potentially see it happen in five to six years.

I don’t believe in terms of market capitalization and overall valuation that Ethereum will outperform Bitcoin, Banz Capital CEO John Iadeluc told Cointelegraph, adding: Bitcoin is the global introduction to cryptocurrency, at least in the foreseeable future. For example, I don’t see any scenario where the SEC approves an Ethereum ETF before approving a Bitcoin ETF.

Jason Peckham, analyst at investment management firm Invictus Capital, told Cointelegraph: I don’t agree that it’s inevitable. In fact, five years is enough for a foreigner to reverse ETH and BTC. Much depends on how the two crypto communities handle their regulatory challenges, he added, as well as internal factors, like the rate at which ETH was burned after EIP-1559, which should make it less inflationary. and potentially more attractive to investors. He added:

If I had to pin it on one thing, I would say ETH needs the supercycle / double bubble thesis to unfold. This should allow its various sectors to continue to prosper in a way that will not be possible in a bear market, which would likely be bearish for ETH versus BTC as we have seen historically.

Environmental factors must also be taken into account. The prodigious use of electricity in Bitcoin mining has long been known, but when Elon Musk drew attention to it earlier this year, the price of BTC plunged. While Bitcoin has since rallied, energy [issue] continues to garner attention, Smales said, and it is only expected to intensify. Thus, the switch from Ethereum to PoS creates an additional advantage that could lead to the switchover sooner.

What could derail Ethereum?

Green said ETH had already gained 300% in 2021, compared to just 55% for BTC, and outperformed all other assets in the first half of the year. Is there something that could stop his momentum?

In order to remain in the running to overthrow BTC, Ethereum must maintain its role as the largest smart contract platform, however, new competitors continue to emerge. The point of sale is not yet fully proven, Smales said, and it could evolve so that the market is dominated by a few very large players essentially centralizing it, creating friction in the market and possibly transaction fees. even higher.

The EIP-1559 upgrade was supposed to make Ethereum gas charges more manageable, but according to YCharts, average gas charges hit a three-month high. Since gas charges have put continued pressure on network usability, upgrading to Ethereum 2.0, or Eth2, can’t come soon enough.

Additionally, Bitcoin is not still, technologically speaking. Taproot’s planned upgrade could dramatically improve the efficiency, privacy and functionality of its Bitcoin blockchain, Prasad said.

Bitcoin also enjoys the advantage of the first driver which can be critical with networks. The case for BTC’s dominance boils down to its superior Lindy effect, Peckham told Cointelegraph, referring to a concept popularized by Nicholas Taleb who argues that the older a technology, the longer its life expectancy will be. Along with this, there is the long-term trend that market participants with stronger hands hold the majority of Bitcoin while the rest of the world continues to be tricked into holding their stake in the main cryptocurrency, Peckham added.

Still, Ethereum seems to be gaining momentum now. Trends in the crypto markets have indeed shifted to Ethereum since the DeFi summer explosion, followed by the continued popularity of NFTs, Zuckerman said, as Peckham added:

Cohorts of users have been drawn to Ethereum for DeFi and for NFT, while Bitcoin is less diverse in its range of uses by comparison. Most of what crypto natives like me are excited about crypto right now is built on Ethereum or a competitor to Ethereum.

Ethereum has the richest ecosystem in the crypto space, and DeFi, which largely lives on Ethereum, now holds large amounts in locked-in total value, despite the early summer slowdown and claims according to which DeFi was just a bubble with no intrinsic value.

DeFi had its toughest test yet and passed with flying colors. The number of DeFi users has already surpassed 3.25 million as utilities and use cases increase daily, Hartzman said, adding: With more applications and inbound users, Ethereum could benefit of the Metcalfes law and exponentially increase the overall value of its network.

Are Bitcoin and Ethereum Really Comparable?

On second thought, however, does it even make sense to compare Bitcoin with Ethereum? One is a (putative) form of money, the other is a platform, a new supercomputer powering Web 3.0, on which we can undoubtedly build new technologies.

Right now, the two platforms perform different tasks. Once the effects of upgrading Taproot are in the foreground and developers start building a DeFi ecosystem around the Bitcoin network, it could become a whole new argument. At the moment, however, Bitcoin is primarily a store of value while Ethereum is a decentralized application platform. This is not a Coca-Cola vs. Pepsi debate. This is a golden debate against the Internet, Hartzman said.

Ethereum and Bitcoin are both cryptocurrencies, but from a vision point of view, they pursue two very different goals, added Iadeluc: I don’t believe that Bitcoin and Ethereum are in competition with each other; rather, I believe that their respective growth complements each other.

Related: London Impact: Ethereum 2.0 Staking Contract Becomes Largest ETH Holder

From a technical standpoint, they’re fundamentally different, Peckham said, but from an investor’s standpoint, it makes sense to compare them.

Bitcoin is unique as a store of value, Hartzman said. There really is no such thing as Bitcoin, and there won’t be anytime soon. However, that being said, it is impossible to bet against Ethereum due to its incredible network value, rich community, and pace of innovation.

Peckham told Cointelegraph: As a trader right now, I am more bullish on Ethereum in terms of price development. I think it will continue to provide Bitcoin with an upper edge in a bull run.

Rather than pick a winner, however, a more realistic perspective, Prasad told Cointelegraph, is that over the next several years Bitcoin and Ethereum cement their common dominance of the crypto space as competition between their adherents leads to innovations in both ecosystems.

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