Ether Flippining Bitcoin a Real Possibility But What’s the Caveat
In less than a month, the price of ETH went from about $2,000 to $4,380.
This new ATH came while Bitcoin price chopped, which helped send ETH to nearly 0.081 BTC, a level not seen since May 2018.
ETH has been enjoying a massive run-up, finally catching up to Bitcoin’s late 2020 rally, and is currently moving towards becoming a half a trillion-dollar crypto asset.
In addition, it’s not just Bitcoin that has been seeing institutional adoption; Ethereum is attracting the attention just as much. Eth investment vehicles have been continuously seeing inflows, and several ETH ETFs are also trading on TSX. Reportedly, a good amount of institutional capital is sitting on the sidelines, waiting to enter ETH.
Furthermore, regular bitcoin futures on CME that were launched in Dec. 2017 have been lagging in volume over the past couple of months, only to hit $4 billion on Wednesday, for the first time since April 22nd, as per Skew. Ether futures, meanwhile, in a matter of three months, have exploded, with volume surpassing over $2 billion on May 13 on CME, up from just $200 million on April 15. Trader CL wrote,
“At the moment, CME participants want ETH, not BTC, it seems, BTC open interest has been stagnant, meanwhile ETH demand from CME has blown my expectation by magnitudes for some reason I thought it was gonna be a dead product.”
Tesla CEO Elon Musk citing environmental concern, which has been gaining a voice for some time, has also put forward a new hurdle in front of Bitcoin.
JPMorgan on why ETH > BTC:
"Ethereum 2.0 shifts from an energy intensive Proof-of-Work validation mechanism to a much less intensive Proof-of-Stake validation mechanism. As a result, less computational power and energy consumption are needed to maintain the ethereum network."
— zerohedge (@zerohedge) May 12, 2021
All of this, combined with the EIP 1559 that burns gas fees, effectively making ETH a deflationary asset, has people seeing Ethereum flipping Bitcoin as the number one crypto asset becoming a reality.
Su Zhu, the CEO of Three Arrows Capital, who believes we are in a supercycle, estimates that there is a 50% probability that the Ether market cap would surpass Bitcoin’s during this bull run.
While brief, it is entirely possible, given that Ether has always outperformed the leading trillion-dollar cryptocurrency, the long term is anyone’s guess.
Former BitMEX CEO Arthur Hayes, who, along with two other exchange executives, are set to appear for trial in the US next spring, sees this probability of the flippening occurring to 30%. This probability is revised from 0%, affected by a lengthy report by Nikhil Shamapant, who sees ETH reaching $150,000 by Jan. 2023.
Not sure there’s ever been a stronger setup for ETH flipping BTC.
In the coming months:
1) EIP 1559
2) PoS + ETH 2 Merger
3) DeFi + NFTs
4) Institutions announce ETH positions
5) ESG tailwinds
Meanwhile unclear catalyst path for BTC.
Only a 100% move away.
— Ryan Watkins (@RyanWatkins_) May 13, 2021
While Hayes is bullish on Ethereum and sees a big number for the crypto asset himself, in his latest note, he points out the issues in both the cryptocurrencies that they need to overcome.
He pointed out that while the Bitcoin community fears that Ether will one day overtake their beloved currency, “mETH heads” believe Ether can be both the hardest form of crypto money and the world’s best-decentralized computer.
But “the best forms of money have no industrial use case. Fiat currencies are very useful for commerce because they are intrinsically worthless. The demand to use a particular fiat is completely tied to the usefulness of its network,” he wrote.
Ether’s case is not purely monetary, Hayes said, pointing to the DAO hack when the community chose to roll back the blockchain and giving confidence to investors to continue experimenting with DeFi applications rather than upholding the blockchain’s immutability by letting the funds be drained and be more akin to a hard monetary instrument. He said,
“When in doubt, the Ethereum community will always elevate the needs of the decentralized computer over the needs of being a true hard monetary instrument.”
As history presents, the current EIP-1559 inflation schedule will change too because as the platform becomes more useful, more gas is spent and more ETH burned, making it deflationary.
“If we are underestimating the impact of DeFi on human economic interactions, there is a future where there isn’t enough Ether supply to allow the system to function,” he said. And according to him, a high ETH price won’t solve the supply issue because there is “no magic ETH in the ground” to be exploited.
However, scaling, Rollups, L2, sidechains, and sharding, will lower the floor equilibrium. These scaling solutions that the community is currently working on and are increasingly gaining traction are meant to make the network fast and cheap.
The “shortcomings pointed out by Arthur are solved by scaling solutions and dynamic burn rates,” says Tetranode, an early investor in Ethereum.
While Ether can’t be both, the hardest form of crypto money and power the world’s decentralized computer, Hayes said, it doesn't mean Ether’s market cap cannot eclipse Bitcoin’s.