Bitcoin believers may have new reason to rejoice following the stimulus checks, but Ethereum has use cases on its side.
U.S. President Joe Biden’s $1.9 trillion COVID Relief Bill has passed congress and stimulus checks are soon to be distributed. Early signs indicate recipients are ready to buy Bitcoin.
A survey by Mizuho Securities showed that out of 235 participants who expect to receive stimulus checks from the COVID Relief Bill, 10% are interested in investing in Bitcoin. It’s a small sample size, but according to the survey investing in Bitcoin was a more popular response than investing in traditional stocks.
If that kind of runaway popularity doesn’t move you in itself, consider that it could translate into $40 billion dollars running like a river directly from Biden’s $1.9 trillion stimulus package into Bitcoin.
In the same week, Bank of America strategists suggested to Bloomberg that the price of BTC can be moved 1% for just $93 million.
Bank of America strategists said in a note to Bloomberg on Wednesday: “Bitcoin is extremely sensitive to increased dollar demand. We estimate a net inflow into Bitcoin of just $93 million would result in price appreciation of 1%, while the similar figure for gold would be closer to $2 billion or 20 times higher. In contrast, the same analysis for the 20-year-plus Treasuries shows that multibillion money flows do not have a significant impact on price, pointing to the much larger and stable nature of the U.S. Treasuries markets,”
If you take the survey and projections on face value, you could surmise Bitcoin prices will be moved by over 430% by the influx of $40,000,000 flowing in from invested U.S. COVID Relief money.
It seems reasonable to expect the 12 month Bitcoin bull run to continue, making it the crypto success story of 2021, right?
DeFi Could Steal Bitcoin’s Thunder
Before the Bitcoin bull run, DeFi was a strong competitor as the most dominant story in crypto. BTC’s new price heights have made the world’s most famous cryptocurrency again the center of attention. Bitcoin may always be the star of the cryptoworld and certainly has seen wide popularity and acceptance as a store of value, but Ethereum’s fortunes have generally kept pace with and possibly exceeded Bitcoin since the end of last year.
Since December 2020, Bitcoin has risen from over $28,000 to more than $58,000 (up roughly 207%). Ethereum has traveled from more than $746 to over $1800 (up roughly %240).
This week, Bank of America published a report titled “Bitcoin’s Dirty Little Secrets”. Excerpts from the report are unflattering to the world’s most famous cryptocurrency.
Some of the statements coming from the report include:
“The main argument for Bitcoin is not diversification, stable returns, or inflation protection, but sheer appreciation…”
“There is no good reason to own BTC unless you see prices going up…”
And they point out Bitcoin’s environmental impact is not desirable, stating: “we calculate that a $1bn dollar inflow into Bitcoin is equal to 1.2mn cars driven over the course of a year or 12.7mn barrels of oil.”
They go on to extol the virtues of Ethereum, stating in the report: “Bitcoin is the most talked about cryptocurrency but Ethereum [the blockchain] has more features, including being more flexible in its hosting of decentralized finance (DeFi) than the Bitcoin blockchain.”
“DeFi does, however, show the opportunity which (distributed ledger technology) offers to finance. We believe that one of the best differences against being disintermediated by DeFi would be mainstream finance grasping these opportunities.”
The Hopes and Fears of DeFi…
As a digital currency, Bitcoin is simply designed with a more limited range of use cases compared to Ethereum which has smart contract capabilities. Arguably, Ethereum is the needed sequel to Bitcoin’s success. But how will their performances compare in 2021?
“Bitcoin is the asset of choice for investors looking for a store of value investment characteristics in the cryptocurrency market. Success then is an ongoing price appreciation for this asset. And appreciate it will as long as investors continue to believe in the future of blockchain and cryptocurrencies. Ethereum, on the other hand, is not only a cryptocurrency. It is a network that supports smart contracts, Dapps (decentralized applications), and Defi (decentralized finance) projects. Investors that are looking to invest in up-and-coming tech should pay extra attention to this crypto asset. Over 41 Billion dollars is currently locked in DeFi projects on Ethereum blockchain compared with 4 Billion only 8 months ago. That’s what success continues to look like for Ethereum this year as well — ongoing expansion and innovation,” Tally Greenberg, Head of Business Development at Allnodes said.
Phase 0 of Ethereum 2.0 — known as “Serenity” — launched on December 1, 2020. The hope for this upgrade to the Ethereum network is meant to address the needs for speed, efficiency, and scalability.
“BTC is unlikely to be dethroned as the leading cryptocurrency, but the growth shown on the Ethereum blockchain is hard to bet against. They will naturally be compared ‘against’ one another although this makes little sense from a functional point of view since each is vying for separate and mutually beneficial use-cases. BTC’s ‘digital gold’ narrative is straightforward which is beneficial for attracting new users who may be intimidated by the apparently more complex and dynamically evolving ETH narrative,” Jason Peckham, Analyst at Invictus Capital said.
Ethereum 2.0 is moving from Proof of Stake to Proof of Work but is still essentially in test stages. It remains to be seen whether it will handle the need for speed to support the DeFi range of use cases.
“To me, Ethereum looks very attractive for long-term purchases, since it has a much greater technical potential for application than Bitcoin. The Ethereum blockchain programmability offers incredible growth opportunities. Bitcoin with its limited emission is rather a tool for saving and paying. Ethereum, in turn, is a tool for real usage of blockchain technology in third-party projects,” Dyanis Zabauski, CEO of Coinmatics said.
But nevermind the actual real-world uses — can Ethereum compete with Bitcoin’s price performance?
“I think it’s highly likely that ETH will beat BTC in terms of price performance in 2021… Ethereum has not fully realized the benefit from the growing popularity of DeFi services and NFTs. The exploding NFT market will directly benefit the value of ETH and I think that ETH has room to grow until its price encompasses the current excitement around NFTs,” Noam Levenson cryptocurrency writer and founder of Narrow Straight Writing.
Some experts point to lagging performance as a reason to keep an eye on Ethereum, as we may see much more movement in 2021.
“From a relative performance standpoint, ETH the second-biggest cryptocurrency is lagging Bitcoin up only 20% from it’s All-Time Highs vs Bitcoin 175%. In previous cycles, we have seen ETH catch up to BTC growth when BTC begins to correct because the profits taken from BTC are cycled into altcoins. Because ETH is one to two cycles back from BTC in its growth cycle it makes sense that return on the laggard would outperform the larger market cap of BTC from here,” Jake Wujastyk Chief Market Analyst at TrendSpider said.
Until Ethereum 2.0 is a known quantity, there will be doubts about its ability to meet the already tremendous need for bandwidth to support transactions.
“Ethereum might beat Bitcoin in terms of percentage gain this year. So far in 2021, ETH has increased by value by nearly 150%, while bitcoin has gone up around 90%. However, it is unlikely that ETH will take over in terms of market capitalization because bitcoin is the cryptocurrency with the most people behind it in terms of adoption and use. Many view bitcoin as digital gold and major corporations and institutional investors are adding it to their balance sheets. Ethereum is unscalable in its current iteration and acts more as a platform for decentralized applications than a store of value” Ben Weiss, president and COO of CoinFlip said.
The launch of an improved Ethereum network is a testament to the strength of the project — but also represents change. Change conveys risk — while Bitcoin is simple, immutable, and constantly rising in value.
“I am not yet convinced DeFi is as groundbreaking as its followers deem it to be. The idea of yield farming sounds a great deal like smart contract hot potato with investors jumping from project to project, hoping they aren’t the last ones to hold the bag,” Don Wyper, COO at DigitalMint said.
Institutional investors have been key to driving the value of Bitcoin over the past 12 months. Will those same traditional investing giants turn their attention to Ethereum?
“Eventually some institutional investors will acquire ETH in order to expand their crypto exposure, while others will trade the recently launched CME ETH futures (interest is still low with volumes 8% of the CME BTC Futures). Others will acquire ETH in order to utilize and experiment with some of the applications, particularly in DeFi. However, I don’t see much movement comparable to bitcoin in the near term,” Jason Lau, COO at OKCoin said.
Conclusion
As many respondents pointed out, comparisons between Ethereum and Bitcoin make sense from an investor point of view, but the comparisons don’t go much further than that.
“BTC and ETH are different: BTC is a currency token while the ETH is a utility token. If mainstream institutional investors get into ETH, it would mean that mainstream institutions validate not only the current value of ETH, but also the Ethereum ecosystem as a whole. We have not seen signs of mainstream institutions being involved in Ethereum’s applications. So, in order for institutional investors to get on board, it would take more time and market education throughout 2021 and beyond,” Haohan Xu, CEO of Apifiny said
It may take a shift in mainstream understanding — or even a mild learning curve — to get traditional investors who have tried the familiar Bitcoin to understand the power of DeFi, but it seems the mighty bull run market is raising all ships in the cryptoworld and institutional investors are already getting on board.
“Institutional investors are already getting on board with Ethereum. Just recently, Grayscale, the world’s largest Crypto asset manager, purchased more Ethereum than Bitcoin for a change. Chinese public firm Meitu also grabbed 15K of Ether not too long ago. Galaxy Digital’s ETH funds raised 32 Million in less than a month. The launch of Ethereum Futures on the CME, the launch of Canadian ETH ETFs, and we’re just scratching the surface here… I anticipate a further surge of institutional investments in Ethereum. This is just the beginning,” Greenberg said.