Cryptocurrency News

3 Reasons Why Ethereum Could Undermine Bitcoin in the Short Term


ether (ETH) Price outperformed bitcoin (B T c) up to 173% from March 28 to May 15. Incredible bulls caused the coin to reach an all-time high of $4,380. However, the trend reversed as the crypto markets began a sharp decline on May 12, and since then, Ether has underperformed 25%.

Some might say that this is a technical adjustment after a strong rally. While this partly explains the move, it excludes some important factors, including the rapid progress of smart-contract network competitors and the adoption of bitcoin as an official currency for the first time.

Ether/Bitcoin price on Binance. Source: TradingView

Notice how the ETH/BTC ratio rose again on June 8, reaching 0.77, while Ether was trading 36% lower from its all-time highs and near $2,800. To understand what the ratio might be, analysts need to analyze Ether and Bitcoin price drivers separately.

Mike Novogratz may have been misinterpreted in his interview

Ether’s bull run potentially got an extra leg due to intense appreciation from institutional investors. Traders could pick up on the sense of urgency known as FOMO, and immediately shift their bitcoin exposure towards the major altcoins.

On May 13, The New Yorker Magazine published an interview With Mike Novogratz, founder and CEO of Galaxy Digital. In conversation Novogratz said:

“Suddenly, you have both decentralized finance and NFTs on Ethereum with largely rapid growth at the same time.”

Novogratz was then asked how high the ether could reach, to which he replied:

“You know, it’s dangerous to make predictions on altitude. But can it reach $5,000? Of course it can.”

While one Ethereum holder may interpret this as a prediction, others may interpret it as a wild guess, possibly based on general crypto market conditions.

However, about a week later, a Goldman Sachs report revealed that the global investment bank believed that ether had “a high potential to overtake bitcoin as a major store of value.” Interestingly, one of the key quotes in the report was directly from Novogratz’s interview with The New Yorker.

At its peak, Binance Chain controlled 40% of DEX volume

While Ethereum has maintained its dominance of 80% of net worth locked in decentralized finance (DeFi) applications, Binance Smart Chain (BSC) has reached 40% market share on DEX exchanges.

Pancake Swap DEX Daily Volume Vs Top 10. Source: DeBank

The successful development of the DeFi industry and non-fungible token (NFT) markets caused massive overcrowding on the Ethereum network, leading to an average fee of $37 in mid-May. That bottleneck triggered an activity exodus for competing networks, and PancakeSwap was best positioned to capture that flow.

related: Here’s Why One Analyst Says Bitcoin Will Outperform Ethereum in the Short Term

To make things worse, important DeFi projects were expanded to Binance Smart Chain, including produce aggregator Harvest Finance and Decentralized Exchange Aggregator 1 Inch. Investors quickly realized that this trend could continue as competing smart-contract networks provided an easy solution for dApps looking for cheaper alternatives.

No country is adopting the ‘Ethereum standard’

Bitcoin may have had a subpar performance over the past 30 days as it failed to break the $42,000 resistance multiple times. However, a major milestone was achieved when El Salvador becomes first country to make bitcoin legal tender on 12 June.

After the Central American country made adjudication law, some other Central and South American countries began to discuss the benefits of taking a similar route.

Ethereum is undergoing a redesign that will change the issuance rate and how entities are paid to secure the network by moving away from a proof of work model. Meanwhile, Bitcoin is ensuring that each upgrade is backwards-compatible and maintains its strict monetary policy.

This is the main reason why Ether will not outperform Bitcoin in the next 12 months, or at least until a better understanding of the Ethereum network dominance of smart contracts.

Professional investors avoid uncertainties at all costs, and the cryptocurrency market already has a lot to offer. There is no reason for institutional investors to ignore risk while competing networks eat Ethereum’s lunch.

The views and opinions expressed here are those of only those Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.