Wu said the author | Uncle Tan

Editor of this issue | Colin Wu

The topic of Ethereum’s market value surpassing Bitcoin is rekindled. However, there are still three problems: uncertain technology prospects, unfavorable institutions, and more competitors.

According to coinmarketcap, the current total market value of Bitcoin is 1091 billion U.S. dollars, while the total market value of Ethereum is 447.5 billion U.S. dollars, which is close to half of the total market value of Bitcoin. Ethereum has risen by 17 times in the past year, compared with Bitcoin’s rise by 4.7 times. This also brings up a question that has existed for many years: when will the total market value of Ethereum be able to “turn over” Bitcoin?

The total supply of Bitcoin is 21 million, while Ethereum has no upper limit. The current number of Ethereum is about six times the number of Bitcoins. Therefore, when the price of Ethereum exceeds one-sixth of Bitcoin, that is Can complete the market value turnaround. At present, mainstream public opinion seems to believe that Ethereum will reach 10,000 US dollars after EIP-1559, and Jiang Zhuoer even believes that Ethereum will reach 20,000 US dollars in this bull market. Is this possible?

From a long-term perspective, Ethereum does have the possibility of turning over Bitcoin, and some data has already shown clues. According to cointelegraph[report](1), on May 4, the total transaction volume of ETH contracts across the network reached 87 billion U.S. dollars, surpassing the total Bitcoin contract transaction volume of 81 billion U.S. dollars, the first time in history.

In addition, according to Google trends, Internet users’ search volume for the keyword Bitcoin has not surpassed the search volume at the peak of the bull market at the end of 2017, while the search volume for Ethereum has already surpassed the previous high and continues to rise. Shows the enthusiasm of new users.

In terms of transaction data on the chain, Bitcoin has been flat for many years due to block size limitations, while the transaction volume of Ethereum has been steadily increasing. It is foreseeable that from the indicator of on-chain data, ETH will get rid of BTC even more in the future.

More importantly, the burning mechanism of EIP-1559, the ETH lock-up of ETH2.0 does not count as an increase, and the locked-up ETH in DeFi all lead to a decrease in the circulation of ETH. These are also the core reasons for the increase in the value of Ethereum.

Uncertainty factors in ETH’s turnaround of BTC

At present, BTC has become synonymous with cryptocurrency, and its image of “store of value” has been deeply rooted in the hearts of the people. If the market value of ETH wants to exceed BTC, it still faces many challenges.

1. Potential technical risks

Bitcoin is known for the stability of its system. It is extremely conservative in any system changes. The activation of the new function Taproot is currently only supported by 25% of the mining pool’s computing power, but it requires 90% of the computing power to pass (but most mines The pool has expressed support). Once Bitcoin was criticized for its conservativeness, it was recognized by institutions in this round of bull market and became a true “digital gold”.

Conservation has brought great stability to Bitcoin. After more than ten years of operation, it is basically believed that the Bitcoin network is unlikely to have any technical problems. Dogecoin, which is based on the same code system as Bitcoin, has not undergone any development for many years, and the system is still safe and stable, which proves the stability of the Bitcoin system.

On the other hand, Ethereum is an evolving system. Due to the many functions that need to be implemented, the complexity of the system is more than an order of magnitude higher than that of Bitcoin, and the technical complexity will inevitably lead to inconveniences. The most visible risk is the fork of The DAO in 2016, which directly led to the creation of ETC. The potential risks in technology make institutions choose to proceed cautiously when entering.

2. The number of institutional investors

Although Ethereum also has a corresponding ETF, it is still very insufficient compared with more than a dozen Bitcoin ETFs and a huge amount of gray funds. There are many listed companies that publicly hold Bitcoin on the market, and there are also giants like Tesla, and only Meitu has publicly held Ethereum. The shortage of institutional investors also means the shortage of financial derivatives. Although on May 4, the trading volume of Ethereum contracts surpassed Bitcoin for the first time, for contracts, the more meaningful data indicator is open interest. In this respect, the total holdings of Ethereum contracts are still only about half of the holdings of Bitcoin contracts. In addition, for institutions, most transactions are conducted on compliant exchanges. On May 4, the transaction volume of Bitcoin contracts on the compliant exchange CME was 2.6 billion U.S. dollars, and the transaction volume of Ethereum was 1.1 billion. In US dollars, the gap is still large.

3. The question of future challengers

As a means of “store of value”, Bitcoin already has sufficient first-mover advantage, and its status as a digital gold has been established. Challengers many years ago have been defeated, and there have been few challengers in recent years. As for Ethereum as a decentralized computing system, challengers are still springing up like mushrooms. Not to mention, just say that the challengers such as Cardano or Polkadot founded by the co-founders of Ethereum, plus BSC of Binance, which ranks first in transaction volume, the ascendant Huobi, and OKEx ecological chain, all bring Ethereum to Ethereum. Here comes a certain challenge. From this perspective, Ethereum’s status as the world’s premier platform for smart contracts does not have Bitcoin’s position as a digital gold for the time being, which also brings uncertainty to its market value turnaround.