The question, hope, argument or possibility that Ethereum will “tip over” Bitcoin has surfaced again and again, especially in the previous month. However, the question is more relevant now, mainly for two reasons.
The first is Ethereum’s London hard fork slated for this week. The second reason is Ethereum’s recent performance on multiple metrics. This article examines these two reasons in detail.
What will change after the hard fork of Ethereum?
Bitcoin’s limited maximum supply of 21 million has placed it as an asset over Ethereum. While EIP-1559 won’t necessarily make ETH deflationary, it is starting to reduce its net emissions as Ethereum would be burned by introducing the basic fee. Ether’s monetary policy and its restructuring also brought Bitcoin’s premium over Ethereum to the fore.
Since OG Bitcoin has been around for a long time, it has a greater Lindy effect. Market participants and investors are more confident about the top coin because of its deflationary nature. This further creates a monetary premium for Bitcoin.
However, the possibility that ETH BTC will flip cannot be dismissed, and a look at the data on the chain will help understand the likelihood of it.
What do the metrics say?
One recently report compared certain on-chain metrics for BTC and ETH to examine their benefits, network effects and cash rewards. It highlighted that Ethereum transactions have outnumbered Bitcoins since the summer of 2017. Implies that Ethereum is way ahead of BTC in terms of utility.
Interestingly, the creation of DApps has resulted in a constant increase in ETH transactions since 2020. The number of transactions on a 7-day average grew by 120% during that time, and the same for Bitcoin decreased by 20%. In addition, Ethereum is a smart contract platform. That makes it higher valued in terms of its transaction activity compared to Bitcoin.
Additionally, Ethereum’s average 7-day fees exceeded Bitcoin’s for most of 2021. Ergo, in terms of demand too, Ethereum could only be one step ahead of Bitcoin. The first time Ethereum’s fees were higher than Bitcoin’s in a long time was in the DeFi summer.
While EIP-1559 is not expected to lower fees, increasing usage of the network after it is done would result in more ETH being burned. This would directly benefit the owners of network activities.
Finally, the report also found that, despite its first mover advantage in terms of growing the number of addresses with a balance, Bitcoin “lagged behind” Ethereum. There are currently about 20 million more Ether holders than Bitcoin holders.
Does this mean Ethereum is ready to flip Bitcoin?
A straight answer to this question would be no. Although most of the key indicators point to greater utility and network effects, Bitcoin continues to be king in terms of valuation and dominance. Ethereum’s market capitalization has increased 1,600% since 2020. While Bitcoin’s only increased 400%, Ethereum’s market capitalization is roughly a third the size of Bitcoin in relative terms.
So, given EIP-1559, it is worth asking if Ethereum will develop a cash reward similar to BTC once its offering starts to burn up. And would that be a threat to Bitcoin’s cash rewards in the future? Whatever happens, Ethereum, which is flipping Bitcoin in the near future, seems a little too optimistic for now.