2021-03-15 13:08:09

Could Ethereum Be Worth More than Bitcoin?

As I write this, Ethereum (CCC:ETH-USD) has a market capitalization of $201 billion. The total supply of Bitcoin (CCC:BTC-USD) now is valued at just over $1 trillion.

Source: Shutterstock

The relative size of the two cryptocurrencies’ market caps “feels” correct. It seems almost self-evident that Bitcoin should be the more valuable of the two. Bitcoin is the most well-known, the most widely adopted and the most owned of all the cryptos. It gets the most attention.

But I’m not sure it actually has the most potential. There’s a case that, over the long haul, it’s Ethereum, not Bitcoin, that proves to be the most valuable cryptocurrency out there.

The Case Against Bitcoin

At this point, we’ve largely answered what Bitcoin is: a so-called “store of value.” As even Coindesk puts it, Bitcoin is “digital gold.

That’s fine as far as it goes. The crypto’s design aids in this process, given the cap of 21 million Bitcoins that can be mined. That fixed supply does help create the case for Bitcoin as a store of value, or something with intrinsic worth.

But it’s worth noting that Bitcoin wasn’t conceived as a store of value. The original white paper by the pseudonymous Satoshi Nakamoto presented an idea for a “peer-to-peer electronic cash system.” Bitcoin was supposed something much closer to a currency, rather than a store of value.

The fact that the bull case for Bitcoin has pivoted over time isn’t necessarily a problem for the store of value argument. (I have my doubts, but then again I’ve been wrong on the crypto pretty much from the jump.) But that argument does leave Bitcoin as a somewhat fixed technology.

Meanwhile, it does leave an opening for an actual method of exchange to gain adoption. On that front, Bitcoin simply is too slow, owing in part to its scalability problem.

In other words, if Bitcoin can’t truly be the ‘currency’ part of a ‘cryptocurrency’; if it can’t provide instant, seamless, transactions; what can?

The Case for Ethereum

The answer might well be Ethereum.

The broader Ethereum platform has the power to actually do what Satoshi Nakamoto believed Bitcoin would: to decentralize finance. And experts generally (though not unanimously) agree that Ethereum has a big edge in so-called ‘DeFi’ projects.

Two points need to be made. First, Bitcoin does have DeFi applications, though not as many as Ethereum. Its lack of complex “smart contracts” is a hindrance, but one that could be improved by new coding language.

Second, Ethereum has its own issues, notably high gas fees. Those fees create roadblocks to creating microtransaction payments, among other issues.

But Ethereum too should improve, notably through Ethereum 2.0, which can ameliorate gas fee problems. The flexibility of the platform allows for a range of projects to be created. Faster speeds get around a core stumbling block with Bitcoin. The shift from proof-of-work to proof-of-stake essentially means that stakers instead of miners control the platform. This is turn creates a healthier, and likely more productive, ecosystem.

Simply put, Ethereum has a far broader set of use cases than does Bitcoin. For bulls who see crypto as creating an economic and financial revolution, that would seem to make ETH the more attractive choice.

How This Plays Out

And, in fact, Ethereum has outperformed Bitcoin handily so far in 2021. The run extends even further. Over the past 12 months, it’s returned 1,300% against 931% for the better-known crypto.

Now, to be clear, that recent outperformance doesn’t necessarily have to continue. Bitcoin’s more simple case may help its price, by attracting traders and investors who aren’t as technically versed in, or bullish on, decentralized finance. That aside, the very fact that Bitcoin is more popular itself can keep it more popular going forward. More coverage and more attention may mean more trading activity, which generally (though not always) leads to higher prices.

And, of course, the crypto universe extends far beyond its two most valuable members. Ripple (CCC:XRP-USD) is a centralized offering, and has its share of problems at the moment, but still has an intriguing use case. Myriad other ‘altcoins’ claim the ability to tackle significant financial and even societal problems.

It’s not necessarily an either/or proposition between Ethereum and Bitcoin. Even if it is, nothing says that requires that one has to rise and the other fall. Bitcoin itself is barely 12 years old; Ethereum went live in 2015. We’re in unchartered waters here, and the valuation of any cryptocurrency is at the moment mostly in the eye of the beholder.

Still, it is worth at least considering the possibility that Ethereum proves to be the biggest, or at least bigger, winner in crypto. Given a market cap barely one-fifth that of Bitcoin, such a possibility would likely suggest enormous upside.

On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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