tldr: Ethereum’s market cap will surpass Bitcoin’s by 2030
I think that over the next 2 halving cycles, Ethereum’s market cap will overtake Bitcoin’s. I own both assets and probably will for a very long time.
Below are the reasons why I think this will happen. This is a very draft-y article, but I wanted to publish it before laziness or doubt got the better of me.
1. Ethereum is “cheaper” than Bitcoin. Unit bias is real
Investors like lower prices. Lower prices look cheap. Lower prices mean you can own more units. Even if this isn’t logically correct, it’s psychologically true, and this pattern has proven itself in human investing behavior time and again. Why do publicly traded companies do stock splits? Why do meme coins like doge and pepe have such crazy low prices? Similar reasons.
Because Ethereum has ~5x more units than Bitcoin, even if Ethereum market cap equalled Bitcoin’s today, the BTC price per unit would still be more than 5x higher than ETH.
2. Ethereum has unlimited narrative upside. Bitcoin doesn’t
Mainstream media — and the average crypto noob — believes bitcoin to be the new “digital gold”. And beating gold is itself a lofty goal, a good 10-20x higher target than Bitcoin’s current price. I believe Bitcoin will reach that narrative promised land. But where does Bitcoin go after it surpasses gold’s market cap, when it’s worth $500K a coin?
Proponents believe Bitcoin will slowly absorb value from other markets like offshore banking and failing fiat currencies. USD is another $35T. Perhaps Bitcoin could even become the global reserve currency. But that path is primarily political, not technological, and is thus even harder to forecast.
Whereas Ethereum’s sticky metaphors are “digital native computer” and “the decentralized internet” and the “future of finance”. How much is the collective computer industry worth? What about the internet? What about all of finance? And how much will these industries be worth in 10-20 years? Hard to estimate, but the internet itself still has billions more people to onboard. Arguably the upside for Ethereum’s metaphors is unlimited.
*Addendum: In the early days, the common metaphors were Bitcoin = gold and Ethereum = oil. Which one is more critical to societal development and human flourishing? Today it’s clearly oil, but perhaps gold had its moments in previous eras. I’m not sure.
3. ETH pays yield. BTC doesn’t
You may notice by now that many of my points boil down to just focusing on the obvious and not overthinking it.
Ethereum is positioning itself as the Internet’s bond. An internet-native credit asset that pays a consistent and meaningful yield, and investors like yield. Currently it’s sitting at 3% per year.
Further, the global bond market is worth more than $100T, or a nice 400x over today’s Ethereum market cap. Yet another Ethereum comp that is measurably larger than Bitcoin’s digital gold comp.
4. ETH has more use cases than BTC
You can send and receive bitcoin. Those are the two main verbs you can enjoy if you hold bitcoin.
Ethereum has more: You can stake ETH for yield. You can lend, collateralize, and borrow ETH. You can spend it on NFTs and art. You can transfer it between chains and layers.
I’m sure I’m missing other verbs. The pace at which ETH is adding verbs far outpaces BTC’s efforts.
In part, this is because Bitcoin has to some extent sacrificed the potential of its “Bitcoin network” in the interests of preserving the value of its “bitcoin currency”. While Ethereum has tried to balance the needs of both its network and its native currency ETH. Rollups + L2 = needs of network. 1559 and staking = needs of currency.
5. BTC is moving to ETH, but not vice-versa
In some ways, Bitcoin is a financial black hole, sucking the traditional finance world’s monetary energy onto its blockchain. But in crypto itself, ETH is the black hole for BTC. Zoom out, and the growth in wrapped / bridged forms of BTC on Ethereum is clear and consistent.
It’s relatively straightforward to buy and own bitcoin on Ethereum. With that collateral, you can then participate in all of Ethereum’s verbs.
But you can’t do the reverse. There is no method I know of, to move ETH onto Bitcoin’s blockchain. And why would you? You’d be missing out on all of ETH’s verbs and ETH-native staking.
6. ETH has narratives that normies like
With the transition to PoS, ETH is positioned as an ESG friendly asset with a small carbon footprint (unlike BTC with its “miners use more electricity than a large country” false equivalence).
Ethereum has a publicly known and generally liked genius “founder” in Vitalik, who is both very prolific and very measured in his actions. (Unlike BTC with its anonymous founder with the Japanese pseudonym and dogged rumors of a connection with US central intelligence)
Ethereum generates significant and growing revenues, which makes it easier for tradfi to model and value. This helps to tell the Wall Street story. This also gives Ethereum a more sustainable model for blockchain security — while BTC is still reliant on new token emissions.
The ETH ETF trade: if Bitcoin’s ETF is approved, it follows that the same institutions will apply for — and probably get approved — an ETH ETF. This may take a year or more, but the expectation is there and the same pattern has played out with the ETH futures ETF and ETH’s global regulatory acceptance.
Normies understand and use stablecoins. Everyone wants more (US)dollars. Stablecoin growth will predominantly occur in the ETH ecosystem (and TRON, but let’s not go there). So to use USD or EUR onchain, most normies will likely familiarize themselves with Ethereum and hold some ETH to conduct onchain transactions.
7. ETH actually has LESS regulatory and geopolitical risk
There was a moment there where the SEC wanted to classify ETH as a security. But I think that moment has passed, the risk is now lower in the current US political environment, and this improvement is not priced in.
On all other dimensions, and especially ex-US, Ethereum has arguably less regulatory and political risk. Reasons include, to repeat myself somewhat:
-ETH’s position as an ESG-friendly and sustainable asset
-Bitcoin’s direct competitors are fiat currencies like USD and RMB. Ethereum is more about new internet infrastructure and new financial architecture. Bitcoin competes with nation states, while Ethereum arguably competes with FAANG and banks. Which one worries the politicians more?
-Bitcoin is often called “digital gold”, and the US has banned gold ownership before
-The squeaky wheel gets the grease. Bitcoin is currently the largest and best known cryptocurrency. Bitcoin offers more political points and more at stake for politicians and regulators. For now.
8. It’s not Web3, it’s EVM3
Web3 has been memed to a timely death. But there’s a new 3-letter in town and that is EVM. In other words, Ethereum’s core technology has essentially won the L1 blockchain wars. L1s are the foundation for the decentralized web, and so Ethereum the brand, the tech, and likely the ETH blockchain and $ETH token itself are essentially the basis for whatever we want to call it: Web3, the decentralized web, the new internet, the distributed computer, the blockchain economy, etc.
Aside from Solana, no one talks seriously about competing layer 1s anymore. Every blockchain is slowly becoming a spoke to the ETH hub. Because ETH is where all the value is, where the users are, where the tech innovation is, and where you have access to the most verbs.
Bitcoin’s technology has largely ossified, quite purposefully, and as mentioned before, all the innovation bright spots (like Ordinals, Lightning, Sidechains) lag ETH development by 1-2 cycles.
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There’s a lot more that I haven’t covered, and I could probably write a passable if more stretched case for why ETH will never flippen BTC. But the above is what I think *likely* to happen. My bet is that ETH briefly flips BTC this cycle (like late 2024 / early 2025), then it falls back below BTC again during the next bear, then ETH will securely take the top spot in the 2028 halving.
*I’m setting a calendar reminder to come back and review this every 6 months (next up is April 2024)
**I used DALL-E 3 for the lead imagery and I am blown away…