Ethereum Could Flip Bitcoin’s Market Cap by 2027, Industry Experts Say
- Ren Yu Kong is a DeFi portfolio manager at digital asset hedge fund BKCoin Capital.
- He says ether has an upper hand on bitcoin due to its staking yields.
- Ether is up 39% in the past month ahead of its network upgrade, according to Messari.
Ahead of Ethereum’s highly-anticipated upgrade, the smart-contract network’s cryptocurrency has continued to rebound from 2022 lows, jumping 39% in the past month, according to Messari.
Those gains have come despite contagion concerns over the fallout of major industry players like crypto hedge fund Three Arrows Capital, and a seemingly risk-off appetite from investors as the Federal Reserve’s attempts to combat inflation have hiked lending costs.
The nascent space has regained some of its prior footing, notching a more-than-$1 trillion market cap once again after months of consecutive losses. And ethereum has outpaced its rival bitcoin — the oldest cryptocurrency — which is up just 14% over the same period.
Some industry experts predict that ethereum will overtake bitcoin’s market cap — although their timeframes differ. Ren Yu Kong, a DeFi portfolio manager for digital asset hedge fund BKCoin Capital, says this “flippening” could take place in the next five years.
“At the start of this year, if you asked any investment professional, the de-facto answer was definitely dollar cost average into BTC,” the 25 year old told Insider. “If you really wanted to take a bit more risk, you could allocate a bit to ETH. I think that’s definitely switched up now.”
Ethereum is currently half the market cap of bitcoin, however. Bitcoin’s market cap is notched at $457 billion, however, while the ecosystem’s total value is at $1.2 trillion. Bitcoin, which is trading roughly 1,200% higher than ether, has a market dominance of 40.27%. In comparison, ether has a market cap of $229 billion and is currently trading at $1,874.34.
The ‘strong narrative shift’ ahead of The Merge
In the past six months, Kong says there’s been a “strong narrative shift in favor of ETH” ahead of its upgrade, The Merge.
Slated tentatively for mid-September, the upgrade will transition Ethereum’s network from the energy-intensive proof of work (PoW) to proof of stake (PoS) model. According to the Ethereum Foundation, the Merge reduce its network’s energy usage by 99% and will “set the stage for future scaling upgrades including sharding.”
Kong laid out for Insider three reasons supporting his call that ethereum will eventually flip bitcoin.
The first is that if the network is able to cut down on its energy usage successfully, per Kong, this could also cause a flood of institutional capital pouring into Ethereum’s ecosystem.
“It’s not hard to envision a world where institutional allocations towards Ethereum increase massively relative to Bitcoin, especially once we transition to a proof of stake system,” he said, adding that the smart contract network will be “much more environmentally friendly.”
Harry Kalodner, CTO and cofounder of Ethereum scaling solutions provider Offchain Labs, says that the network migrating to PoS will “create an additional strong differentiator between the two chains.”
“Generally, Ethereum has shown much more willingness to iterate and innovate on its core technology whereas Bitcoin has ossified,” Kalodner told Insider in a statement.
Second, Ethereum’s network has “actual” utility in comparison to bitcoin’s, Kong says.
The smart contract network is the bedrock of DeFi, or decentralized finance, where developers can build and deploy decentralized apps. (Performing functions on Ethereum’s network such as minting NFTs, or non-fungible tokens, can come with hefty gas fees, however.) Bitcoin, on the other hand, is commonly seen as a peer-to-peer transaction system and a store of value.
“In the past few months, investment professionals more and more agree that ETH seems to be the safer play because at the end of the day, it does have utility to it and Bitcoin doesn’t. In the current market conditions, if something has utility and actual value, it’s a much better proposition,” Kong said.
Third, he notes that ethereum also has an upper hand on bitcoin due to its yields. The network’s robust use cases also include staking, or a way to earn passive income by validating transactions on a blockchain. With Ethereum compatible staking solutions like Rocket Pool and Lido, investors of a token can generate yields without having to sell.
“Ethereum has actual value in terms of staking yield, and as scalability improves, it could cement itself as the base layer that secures a large amount of the world’s digital transactions,” Kong said.
A bold scenario where the flip happens in 12 months
Some execs are even more bullish on the upgrade, predicting that ether could overtake bitcoin in market cap within the next year. In a recent note to clients, Sean Farrell — vice president of digital assets at Fundstrat — said that the firm is on “flippening” watch as bitcoin continues to underperform.
In derivatives markets, ether options volumes surpassed their bitcoin counterpart for the first time in history, per the August 12 note, when comparing 30-day moving averages. Farrell says that this signals a “comparatively greater level of attention being paid to the ETH market among traders.”
“While we still think there are inherent technical risks embedded in the Merge that we will continue to assess leading up to the big event, we believe that from both a narrative and fundamentals perspective, ethereum now has a good chance of surpassing bitcoin in market cap over the next 12 months,” he added.