Why Ethereum Is Unlikely To Flip Bitcoin Any Time Soon

Last Updated October 1st 2021
7 Min Read

The battle for supremacy between Bitcoin (BTC) and Ethereum (ETH) has been pretty heated up this year. Ethereum’s positive developments have many crypto experts expecting it to flip Bitcoin at some point.

One of the key factors driving the case for a flippening is the London Hard Fork that happened in August. That’s because part of the changes that this fork brought included making Ethereum deflationary.

This is done by burning some of the Ethereum generated during transactions instead of distributing it to miners. Since this affects the demand and supply dynamics of Ethereum, it is widely expected that it will significantly add to the upside pressure on this crypto.

The expectations around this hard fork are quite evident in Ethereum’s rally from early August up until mid-September. While Bitcoin is still far off from its all-time highs, Ethereum was less than $300 shy of its all-time highs in the most recent rally.

The excitement around Ethereum becoming deflationary has seen some top market players such as Dan Morehead of Pantera Capital betting big on such a scenario playing out at some point in the future.

The excitement around a deflationary Ethereum has also been driven by the fact that the Federal Reserve, the most important Central Bank globally, is likely to continue with its asset purchases for longer.

This means investors looking to hedge against the risk of inflation are likely to turn to deflationary assets, and Ethereum is now one of them.

However, such policies are likely to affect both Bitcoin and Ethereum equally. While Ethereum is set to get scarce thanks to the London fork, Bitcoin has always had scarcity as one of its key selling points.

Every 4-years, the Bitcoin block rewards to miners are cut in half and have played a role in its price dynamics over the years.

For instance, after the 2016 halving, the price of Bitcoin peaked at $20k in December 2017. A similar thing happened after the halving of April 2020. What followed was a rally that saw Bitcoin peak at $64k in April 2021.

Considering that the next halving will shrink Bitcoin block rewards to just 3.125 BTC, the impact on the price of Bitcoin could be much bigger than in the past. That’s because the institutional uptake of Bitcoin is now much higher than it has ever been in the past. This means the next halving could easily push it to hundreds of thousands of dollars per coin.

Going by these Bitcoin metrics, it is quite obvious that Ethereum flippening Bitcoin is unlikely to be easy. Both are deflationary, but the supply factors are stronger on Bitcoin.

That’s because, besides the ever-shrinking supply of Bitcoin, its total supply is also much lower than that of Ethereum. There is only 21 million Bitcoin that can ever be mined, and of those mined so far, millions have been lost through misplaced private keys.

This is just one of the indicators of how Ethereum flippening Bitcoin is unlikely to happen any time soon if it will ever happen at all.

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Bitcoin Is In The Lead In Terms Of Active Addresses

To better understand why Bitcoin is still the king despite Ethereum introducing a deflationary feature, one needs to look at the number of addresses for both.

Not just addresses, though, but addresses that have sizeable amounts of assets in them, most preferably $1000 or more.

On this front, Bitcoin has a clear lead. Per data by Coinmetrics, Bitcoin has about 6 million addresses that have at least $1000 worth of BTC or more. This number has been on a growth trajectory, and since last year, the number of such addresses has increased by 3.67 million.

On its part, Ethereum’s address figures are much lower. Data by Coinmetrics shows that Ethereum addresses that hold more than $1000 in assets are less than 2.7 million.

Ethereum’s new addresses that have more than $1000 or more have been growing slower than Bitcoin. From 2020-to-date, the number of new Ethereum addresses is about 2.4 million, significantly lower than Bitcoin’s.

This means that the number of new investors betting on Bitcoin’s long-term growth is significantly higher than the one betting on Ethereum. Such a scenario is an indicator of the levels of investor confidence in both.

It shows that, while investor confidence in both is high, the average investor expects Bitcoin to outperform Ethereum going into the future. Considering that Bitcoin has a very low supply, an increasing price could see its value rally by a huge margin going into the future. This could dent any chances of Ethereum flippening it, at any time in the near future. 

The other angle to this growing difference in address numbers is that people tend to follow the gains. If Bitcoin’s fast-growing address numbers push up its price and market cap faster than Ethereum, investors chasing gains will more than likely pivot towards it.

This will create a ripple effect that could easily widen the gap between these two coins in the long run. When you consider the fact that Bitcoin halving is only a few years away, the new addresses could easily grow at a more exponential rate than those of Ethereum going forward.

That’s because investors expect that after the halving, Bitcoin could easily test highs it has never tested before. It has proven this in the past, and now that the number of new Bitcoins entering the market is set to shrink to a low of 3.125, the expectations will be huge.

There are already expert predictions that Bitcoin could easily trade at over $500k by 2025. If this happens, then there is little chance that Ethereum flippening Bitcoin anytime in the near term.

Institutional Adoption Of Bitcoin Is On The Rise

Institutional money is expected to be the key driver to crypto value growth going into the future. Institutional money played a huge role in the massive price rally that cryptocurrencies experienced in the Bull Run, which peaked in April.

Unlike retail investors, institutions take part in the crypto market through exchange-traded products. As such, the levels of activity on ETFs and other structured funds can give an idea as to the direction that the market is taking.

So far, data shows that most of the money is flowing towards Bitcoin. In all the major exchange-traded funds, Bitcoin beats Ethereum by huge multiples. For instance, Grayscale is one of the most important avenues for institutional money to get into crypto. On the Grayscale GBTC, the total assets under management stand at $26.8 billion. This is much higher than the Grayscale ETHE, which has assets under management of $8.9 billion.

Another important vehicle for institutional money is the VanECK VBTC, which has assets under management of $186 million. This is multiple times higher than the VanECK VETH, which has assets under management of $82 million.

In total, major Bitcoin products have assets of about $32.3 billion. On the other hand, total Ethereum products by major funds stand at 11.6 billion. This gap indicates that most institutional players are more interested in Bitcoin than they are in Ethereum.

If these dynamics remain the same, then Bitcoin is likely to keep outpacing Ethereum by market capitalization in the long run. That’s because its total supply is much lower. As such the ripple effect of an institution buying a billion dollars worth of Bitcoin is likely to be much higher than for Ethereum.

With countries, led by El Salvador, now making Bitcoin legal tender, this is likely to make Bitcoin even more attractive to institutional players. This pretty much eliminates any chances of Ethereum flippening Bitcoin, at least not in the foreseeable future.

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The Futures Open Market Price Difference

Through the open interest metric, the futures market is a good pointer of investor interest in both Bitcoin and Ethereum.

Based on data from the past month, the aggregate Bitcoin futures open interest is currently about $13.56 billion.

Source: Byte

In the same period, aggregate Ethereum futures open interest is at $7.01 billion.

Source: Byte

That’s a huge gap and indicates that futures traders are more interested in Bitcoin futures than they are in Ethereum. While this data is variable and can change at any time, the truth is that it is a solid indicator that Ethereum is not taking the top spot anytime soon.

That said, both Bitcoin and Ethereum are well-positioned to give investors incredible returns on investment in the long run. Both have an element of capital safety that no other crypto can match.

On its part, Bitcoin is driven by its first-mover advantage and the fact that it has a store-of-value property.  Ethereum, on the other hand, has distinguished itself as the top platform blockchain in the market. While a lot of competitors have sprung up, none is as time-tested, decentralized, or has the network effect of Ethereum.

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