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The question, hope, argument, or possibility of Ethereum “flipping” Bitcoin has come up several times recently, particularly in the last month. However, the question is more pertinent now, owing to two factors.
The first is Ethereum’s London hard fork, which is set to take place this week. The second reason is Ethereum’s recent performance across a variety of metrics. This article will go over both of these reasons in depth.
What changes after Ethereum’s hard fork?
Because of its limited maximum supply of 21 million, Bitcoin has surpassed Ethereum as an asset. While EIP-1559 does not necessarily cause ETH to become deflationary, it does begin to reduce nett issuance as Ethereum is burned through the implementation of the base fee. Ether’s monetary policy and restructuring also highlighted Bitcoin’s premium over Ethereum.
Since the beginning of time Because Bitcoin has been around for a longer period of time, it has a greater Lindy effect. Because of its deflationary nature, market participants and investors are more confident in the top coin. This adds to the monetary premium for Bitcoin.
However, the possibility of ETH flipping BTC cannot be discarded and a look at on-chain data will help understand the likelihood of the same.
What do the metrics say?
A recent report compared certain on-chain metrics for BTC and ETH to look at their utility, network effects, and monetary premia.Since the summer of 2017, Ethereum transactions have outnumbered Bitcoin transactions, according to the report. By extension, Ethereum is far superior to BTC in terms of utility.
Interestingly, since 2020, the creation of DApps has resulted in a consistent increase in ETH transactions. Over that time, the 7-day average number of transactions increased by 120 percent, while Bitcoin’s decreased by 20 percent. Furthermore, Ethereum is a platform for smart contracts. When compared to Bitcoin, this increases its value in relation to transaction activity.
Furthermore, Ethereum’s 7-day average fees exceeded Bitcoin’s for the majority of 2021. As a result, Ethereum may be a step ahead of Bitcoin in terms of demand. During the DeFi summer, Ethereum’s fees were higher than Bitcoin’s for the first time in a long time.
While EIP-1559 is not expected to reduce fees, the increase in network usage that will occur as a result of it will result in a greater amount of ETH being burned. This would benefit holders directly from network activity.
Ultimately, despite its first-mover advantage, Bitcoin has “lagged behind Ethereum” in terms of growth in the number of addresses with a balance, according to the report. At the moment, there are roughly 20 million more Ether holders than Bitcoin holders.
Does this mean Ethereum is all set to flip Bitcoin?
The simple answer to this question is no. Despite the fact that most key indicators point to increased utility and network effects, Bitcoin remains the undisputed king in terms of valuation and dominance. Since 2020, the market capitalisation of Ethereum has increased 1,600%. While Bitcoin’s market cap has only increased by 400%, Ethereum’s market cap is roughly a third of Bitcoin’s size in relative terms.
As a result of EIP-1559, it is worth asking whether Ethereum will develop a similar monetary premium to BTC once its supply begins to be depleted. And, in the future, will this pose a threat to Bitcoin’s monetary premium? Whatever happens, the prospect of Ethereum dethroning Bitcoin in the near future appears a little too optimistic for the time being.