Can Ethereum Challenge Bitcoin for Asset Class Leadership?

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  • The parabolic period ends – Bitcoin Halves, ether does a little better
  • Bitcoin leads the way – Ethereum is a distant second
  • Ethereum and Bitcoin have different goals
  • Risk-reward could favor Ethereum
  • Ethereum’s proof of participation lowers costs, DeFi is optimistic about Ethereum

On June 7th, 10,332 cryptocurrencies were floating around in cyberspace. The number of new cryptos bursting on the stage continues to increase every day. The appreciation of the leading cryptos has caused market participants to look for the next one or that turns a small investment into a large fortune.

A $ 10 investment in Bitcoin in 2010 at five cents per token was worth over $ 13 million at its most recent high of over $ 65,000. In 2015, Ethereum traded below $ 1, at its most recent high of over $ 4,400 per token. $ 100 invested seven years ago was worth a cool $ 440,000.

Other cryptocurrencies have brought incredible returns for investors. , Elon Musk’s favorite pet crypto, exploded in the back of a speculative frenzy in asset class and PR from high profile backers.

The search for the rough diamond will continue with over 10,000 other cryptos. Massive profits are a strong magnet for speculative activity.

Meanwhile, the rise of Bitcoin and Ethereum has been incredible. Even after halving the value in recent weeks, the asset class leaders are still at stratospheric levels, with many market participants expecting new and higher highs.

The parabolic period ends – Bitcoin halves, Ethereum does a little better on the downside

Bitcoin, the undisputed leader and namesake of the asset class, hit its most recent high on April 14th. The leader in digital currencies reached the day Coinbase (NASDAQ 🙂 listed its shares on the stock exchange.

COIN is a pick-and-shovel game in the cryptocurrency asset class. The trading platform generates profits on the trading volume instead of the price level of the digital currencies. COIN acts as CME and in the crypto arena ICE do in futures and other asset classes. The three are investment and trading platforms.

Cryptocurrencies have developed a pattern to hit new highs as market events fuel their adoption as mainstream investment and trading vehicles. At the end of 2017, the introduction of futures on CME pushed Bitcoin above the $ 20,000 mark for the first time.

High profile investments from Square (NYSE 🙂 and Tesla (NASDAQ 🙂 in late 2020 and early 2021 pushed Bitcoin to higher highs. Futures on Ethereum raised the price of the second leading cryptocurrency earlier this year.

In the meantime, adverse events have led to corrections. The first example came in 2014 when the Mount Gox hack and failure rocked the price of Bitcoin. The most recent event was Tesla’s decision not to accept Bitcoin for its electric vehicles for environmental reasons.

China’s digital currency ban when it launched its digital yuan was likely more influential in bringing down prices and ending parabolic rallies.

Source: CQG

The weekly bitcoin futures chart shows the decline from $ 65,520 on April 14 to a low of $ 30,205 per token just over a month later. The 53.9% decline was a reminder that parabolic markets can turn into falling knives in the blink of an eye. At the $ 32,000 level on June 8, Bitcoin was still over 51% below its record high and 5.9% above its recent low.Ethereum weekly

Source: CQG

Ethereum hit a high of $ 4,406.50 in the week of May 10 and fell to a low of $ 2,062 two weeks after the high, a decline of 53.2%. At the $ 2,410 level on June 8, Ethereum was 45.3% below its high but 16.9% above its recent low. Ethereum has outperformed Bitcoin in the past few weeks.

Bitcoin leads the way – Ethereum is a distant second

By June, Bitcoin’s market cap was $ 602.280 billion, with Ethereum ranking second at $ 279.611 billion. Bitcoin has 41.3% and Ethereum 19.2% of the $ 1.462 trillion market capitalization.

Bitcoin and Ethereum are the dominant members, sharing over 60% of the total value of the asset class. While Ethereum ranks second by a long way, its profile and value have risen, taking part from the market leader. Bitcoin and Ethereum are very different cryptocurrencies with different agendas.

Ethereum and Bitcoin have different goals

Bitcoin is the embodiment of the cryptocurrency ideology as it appeals to the libertarian spirit to take control of the money supply to governments, central banks and monetary authorities. It is the leading brand in the asset class with the most attention from large investors as its market capitalization offers the highest liquidity.

As a decentralized currency, far from the clutches of the Federal Reserve or any other central bank, Bitcoin offers a preset maximum supply. Bitcoin is attractive to market participants who oppose money printing and other monetary policy initiatives that manipulate the entire supply of money in the financial system for political purposes.

Additionally, performance over the past 11 years has made Bitcoin a hot commodity as nothing drives investment and trading like a raging bull market. Bitcoin’s limited supply means that there are 21 million bitcoins. Around 90% of 18.6 million Bitcoin have already been mined.

The rate of new bitcoin creation will decrease over time due to the halving of bitcoin, which will cut the rate of bitcoin creation in half every 210,000 block transactions. The last halving took place in May 2020; the next one will come sometime in 2024. The bottom line is that Bitcoin is a purely libertarian alternative to money.

Ethereum works as a decentralized network with application potential. Many other cryptocurrency tokens appear on the Ethereum network. Bitcoin is money, Ethereum is infrastructure as it is a blockchain that can revolutionize finance and technology.

The usefulness of Ethereum is only limited by the innovations of the developers worldwide, which generate much more activity on its platform. While Bitcoin mining depends on electricity consumption, the main power in the Ethereum market comes from ownership interests.

New Ethereum tokens are minted using a “Proof of Stake” process, in which the security of the token is the one that validates the network. The more Ethereum, the more power within the system.

Risk-reward could favor Ethereum

Bitcoin and Ethereum may be the leaders in the cryptocurrency asset class, but the utility and structure of Ethereum should increase its value compared to Bitcoin. While Bitcoin is just a token with blockchain technology, Ethereum is a token and a platform with far-reaching potential.

I anticipate that Ethereum’s market share will continue to grow at the expense of Bitcoin, as Ethereum has the potential to innovate and Bitcoin is a medium of exchange.

While it could be years for Ethereum to overtake Bitcoin in the leadership role, it appears to have more growth potential in terms of value, favoring the risk / reward ratio in Ethereum’s favor.

Ethereum’s proof of participation lowers costs, DeFi is optimistic about Ethereum

As DeFi, or decentralized finance, grows, the role of Ethereum will increase. If cryptocurrencies eliminate the need for traditional financial intermediaries such as brokers and exchanges, the innovative nature of Ethereum as a platform for creating blockchains could dramatically increase the value of crypto.

Ethereum still has a higher risk than Bitcoin because it has less history. Since a reward is always a function of risk, Ethereum’s success could outperform the leader in the asset class.

Ethereum’s proof-of-stake process reduces the energy required to mine tokens. Innovation will create tokens instead of electricity and hardware. The most efficient and innovative programmers will collect the most tokens, making Ethereum far more carbon neutral when the world is tackling climate change.

We can see Elon Musk and Tesla (TSLA) adopt Ethereum sooner rather than later as it fits with the company’s mission to reduce the carbon footprint with their products. While TLSA’s batteries contain toxic metals that pollute the environment, the company’s engineers and CEO are likely working hard on solutions.

The four issues facing the cryptocurrency asset class are custody, security, carbon, and the political dilemma of controlling the money supply. Ethereum may address the carbon issue and give it a head start over Bitcoin, but custody and security remain thorny issues.

Controlling the money supply is a matter of power. China’s ban on cryptocurrencies, which has cut prices in half in recent weeks, means politics will remain the biggest threat to the asset class.

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