- Ren Yu Kong is a DeFi portfolio manager at digital asset hedge fund BKCoin Capital.
- He said Ether has an edge over Bitcoin in terms of staking yields.
- Ether surged 39% last month ahead of the network upgrade, according to Messari.
Ahead of Ethereum’s long-awaited upgrade, the smart contract network cryptocurrency continues to recover from its 2022 lows, rising 39% in the last month, Messari said.
Those gains were driven by contagion concerns over the impact of major industry players like crypto hedge fund Three Arrows Capital and as the Federal Reserve’s fight against inflation has pushed up lending costs. It came despite the seemingly risk-off desire from investors.
The nascent space has regained some of its former footing, once again hitting over $1 trillion in market cap after months of consecutive losses. And Ethereum outperformed rival Bitcoin (the oldest cryptocurrency) by just 14% over the same period.
Some industry experts predict that Ethereum will surpass Bitcoin’s market cap, albeit in different timeframes. Ren Yu Kong, his DeFi portfolio manager at digital asset hedge fund BKCoin Capital, says this “reversal” could happen in the next five years.
“If you asked any investment expert earlier this year, the de facto answer was definitely dollar cost averaging to BTC,” the 25-year-old told Insider. You can allocate a little bit to ETH, I think it’s definitely switched now.”
However, Ethereum is currently half the market cap of Bitcoin. However, Bitcoin has a market capitalization of $457 billion, while the total value of the ecosystem is $1.2 trillion. Trading around 1,200% higher than Ether, Bitcoin has a market power of 40.27%. By comparison, Ether has a market cap of $229 billion and a current trading value of $1,874.34.
“Strong narrative change” preceding The Merge
Over the past six months, Kong said there had been a “strong narrative shift in favor of ETH” ahead of its upgrade, The Merge.
Tentatively scheduled for mid-September, the upgrade will transition Ethereum’s network from an energy-intensive Proof of Work (PoW) model to a Proof of Stake (PoS) model. According to the Ethereum Foundation, Merge will reduce the network’s energy usage by 99%, making it “ready for future scaling upgrades, including sharding.”
Kong gave Insider three reasons to support his claim that Ethereum will eventually flip Bitcoin.
First, according to Kong, if the network can do a good job of reducing energy usage, then so be it. Causing a flood of institutional capital flowing into the Ethereum ecosystem.
“It’s not hard to imagine a world where institutional investment in Ethereum would increase significantly compared to Bitcoin, especially if we move to a proof-of-stake system,” he said, referring to smart contract networks. would be “much more environmentally friendly”, he added.
Harry Kalodner, CTO and co-founder of Offchain Labs, an Ethereum scaling solution provider, said the network’s move to PoS “creates an even stronger differentiator between the two chains.” increase.
“By and large, Ethereum is much more willing to iterate and innovate on its core technology while Bitcoin is rigid,” Kalodner told Insider in a statement.
number two, Ethereum’s network has ‘real’ utility compared to Bitcoin’s networksays Kong.
Smart contract networks are the foundation of DeFi (decentralized finance), allowing developers to build and deploy decentralized apps. (However, performing functions on top of Ethereum’s network, such as NFTs and non-fungible token issuance, can incur significant gas fees.) Bitcoin, on the other hand, is generally a peer-to-peer A transaction system and a value.
“Over the past few months, investment professionals increasingly agree that ETH appears to be the safer play. After all, ETH has utility and Bitcoin has utility. Something is a much better proposition when it comes to practicality and real value in the current market conditions,” said Kong.
Third, he said: Ethereum also dominates Bitcoin due to its yieldRobust use cases for the network also include staking, a method of earning passive income by validating transactions on the blockchain. His Ethereum-compatible staking solutions such as Rocket Pool and Lido allow investors in tokens to generate yield without selling.
“Ethereum has real value in terms of staking yields, and as its scalability increases, it could solidify itself as the base layer that secures the world’s high volumes of digital transactions,” said Kong.
A bold scenario to reverse in 12 months
Some executives are even more bullish about the upgrade, predicting that Ethereum could overtake Bitcoin in market cap sometime next year. Sean Farrell, vice president of digital assets at Fundstrat, said in a recent memo to clients that the firm is “flipping” as Bitcoin continues to underperform.
In the derivatives market, Ethereum options trading volume surpassed Bitcoin trading volume for the first time in history when comparing 30-day moving averages, according to the Aug. 12 note. Farrell said that this indicates “relatively high interest in his ETH market among traders.”
“There are inherent technical risks embedded in mergers, and we believe they continue to be evaluated for big events, but from both a narrative and fundamentals standpoint, Ethereum surpasses Bitcoin in market capitalization. We think it’s likely, over the next 12 months,” he added.