Will Ethereum’s deflationary monetary strategy have an effect on Bitcoin?

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Bitcoin and Ethereum — the two most important crypto assets – have long been contrasted in terms of performance. According to numerous members of the community, Ethereum adopting a different monetary policy following the upgrade would render the asset deflationary and would reinforce the ‘competitive’ narrative of both cryptos. Indeed, prominent entrepreneur Mark Cuban has predicted that Ethereum will become the more popular cryptocurrency because to its frequent updates, improvements, and multifaceted use-cases.

What’s more, Michael Arrington, the founder of TechCrunch, recently stated,

“A lot of things are happening with ETH this year, way more deflationary of an asset than Bitcoin. So that’s why we’re really excited about Ether.”

Talking on similar lines in a recent podcast, on-chain analyst Willy Woo claimed that Ethereum had been competing with Bitcoin as a store of value asset since 2017. Ethereum network has seen significant developments post that period and the adoption of ETH has parallelly been on the rise. Further elaborating, Woo added,

“Even though it’s a smart contracts network and we have DeFi running on it, I think a lot of the value that has accrued to Ethereum is really people wanting to hold it locking that up and that certainly impacts the valuation metrics if you’re going to reduce the inflation significantly.”

For more than a year, the Sharpe ratio of Bitcoin has been relatively close to that of Ethereum, according to the above data. Nonetheless, at the time of writing, Bitcoin (2.39) was somewhat higher than Ethereum (2.17), signalling a modest advantage.

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Rafael Schultze-Kraft, co-founder and CTO of Glassnode, on the other side, stated,

“I’m more on the side that those [BTC and ETH] are not competing networks… I still view it [ETH] as on the sides and not grabbing capital off Bitcoin, at this stage at least.”

Rafael, on the other hand, ascribed the surge in interest among market players to advances on the Ethereum network. Lark Davis, a crypto-investor, recently tweeted something similar.

Highlighting another contrasting trend, Woo said,

“… I have seen that it [ETH] is becoming a choice for corporate treasuries, where previously the conversation was just Bitcoin.”

The two major cryptocurrencies remain among the most liquid and long-term high-performing assets, and firms wishing to diversify their balance sheets by adding Bitcoin are now viewing Ethereum as a viable choice as well. At the time of publication, Bitcoin and Ethereum had fallen by more than 7% in the previous week alone, and were trading at $34,452.87 and $2503.60, respectively.

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