Why is Ethereum outperforming Bitcoin?
Many investors start their investing journey in crypto-assets with Bitcoin, and later diversify into Ether
Ethereum, the second-largest cryptocurrency in terms of market cap, has surged by 8.75% today at $2,159 while Bitcoin has moved up by just 2.2% trading at $35300, as per the website of CoinmarketCap. Even over the longer term while Ethereum has given the return of 195% since the beginning of this year, Bitcoin has jumped just by 19%. Why is Etherum giving much better returns compared to the oldest currency? Has Bitcoin fizzled out?
Views
“Ether holds this top position because there are many use cases and projects built on the Ethereum network. NFTs, DeFi are few of them. Most people who own NFTs, or participate in DeFi also own Ether since these innovations are mostly built on the Ethereum blockchain indirectly defining a long-term utility for the underlying asset. With the upcoming upgrades to the network, Eth 2.0, we might see a lower transaction fee on the network and more Ether locked up for staking on the network creating a supply lock to a limited level,” said Avinash Shekhar, Co-CEO of ZebPay.
Many investors start their investing journey in crypto-assets with Bitcoin, and later diversify into Ether.
“Bitcoin, as envisioned by its founder, sticks to its vision of being a store of value more than anything else. Any price movement in Bitcoin will be majorly due to the ratification of this use case. For example, the last bull run in Bitcoin was majorly fuelled by western institutions investing in Bitcoin as an alternative store of value,” said Vikram Subburaj, co-founder and CEO of Giottus Cryptocurrency Exchange.
Subburaj added, “Ethereum blockchain on the other hand is constantly evolving and building a platform for solving multiple use cases. While Bitcoin is the torch-bearer for the crypto industry, Ethereum remains the most favoured crypto in terms of utility. Blockchain innovations such as smart contracts, DeFi and NFTs have been enabled by the Ethereum blockchain in the recent past. In fact, Ethereum has started to define the standards with respect to energy consumption by moving towards adopting the Proof-of-Stake algorithm over the current Proof-of-Work algorithm.”
Ethereum is planning a change to the way its miners are paid. In July, an upgrade to the protocol is expected where the fees that miners are currently paid (in ETH) will be ‘burned’ instead of being given to miners. ETH money supply will be destroyed, increasing its scarcity. Miners received over half their revenue via fees in May 2021, according to the recent report by Morgan Stanley.
Environmental Concerns
Bitcoin has recently run into controversy over environmental concerns considering its mining involves lot of energy consumption. On the other hand, Ethereum is considered greener than bitcoin and decentralised finance still mostly runs on Ethereum.
According to a recent Morgan Stanley report, the Ethereum blockchain is transitioning its process for approving transactions to using proof of stake (PoS) instead of proof of work (PoW). Increasing worries about bitcoin’s energy usage made Ether relatively more attractive as PoW doesn’t use as much energy to run, at the expense of the security of the transaction.
Future of Ethereum
When it comes to the price of these assets, both Bitcoin and Ether prices tend to move together. However, Ether tends to perform better in a bullish scenario and vice-versa due to its underlying utility and growth potential.
“Ether may have gained some stability in recent months as more tokens are locked up in DeFi staking as part of the Eth 2.0 upgrade. It has definitely outperformed this year because of Eth 2.0, DeFi, and NFTs. More people are using DeFi and decentralised exchanges like Uniswap, Sushiswap, etc. If this trend continues, Ethereum might continue to garner more demand than usual making it a higher attractive asset for the future,” said Shekhar.
There is, however, a looming threat with new technology coming to the fore.
“Many Ethereum-killers, platforms such as Cardano and Solana with similar features, have sprung up among top 20 cryptocurrencies and this is a major threat that Ethereum faces. Since, it is a bleeding edge, high innovation field, there is a chance that any of these competing blockchains might provide better utility than Ethereum in the future,” said Subburaj.