The beginning of September has made for a testing time for the whole of the crypto market. Bitcoin, in particular, has struggled to stand strong in the face of ailing global financial markets alongside many key players. However, the world’s first cryptocurrency may have more reasons to look over its shoulder. Ethereum is slowly looking more competitive, adaptable, and ready to take the throne of the world’s most valuable cryptocurrency.
Despite Ethereum having plenty of ground to make on the price of Bitcoin, could its more youthful and resourceful blockchain framework point to a crypto powershift in the near future?
The World-Beating Ethereum Blockchain
On the face of things, despite a turbulent end to the summer, Bitcoin is still very highly valued, as backed up by Bitcoin to Ethereum price comparisons. Furthermore, Ethereum’s market cap is notably weaker than that of Bitcoin.
This may cause some confusion among the true potential held by Ethereum in the eyes of investors. However, it’s clear that Bitcoin can’t compete with its long-term understudy in one significant way: the amount of BTC wrapping that’s happening on the Ethereum blockchain.
Until now, Bitcoin could have been ‘wrapped’ on to the Ethereum blockchain through ETH-based tokens or assets, including WBTC which became increasingly popular at the beginning of 2020. Today, we’re learning that there was more Bitcoin wrapped onto the Ethereum blockchain in the past month alone than there were new coins extracted by crypto miners.
This process brings plenty of benefits to investors. For instance, it’s believed that wrapping BTC on to the ETH blockchain can potentially make Bitcoin more compatible with DeFi and their application of smart contracts and insurance. Furthermore, it could help to support new features, like token lending for traders while making the currency more workable on decentralized trading platforms.
In a recent report, Glassnode analysts stated: “This presents an interesting quandary for bitcoin. While it clearly has more utility after being converted onto the Ethereum blockchain, its underlying value ostensible comes from the 68 terawatt-hours of power that go into securing the bitcoin blockchain each year.”
“How much bitcoin needs to migrate onto Ethereum before the necessity of the bitcoin blockchain itself starts coming into question? And, if this were to occur, what would back the value of bitcoin if not the massive amounts of energy that go into maintaining its existence?”
Despite a recent price correction sending Ethereum hurtling back down to earth, 2020 has been a good year for the performance on the cryptocurrency. The price of the cryptocurrency had risen around 300% in the space of six months, and the increased development of DeFi platforms on the Ethereum blockchain will ensure that ETH maintains a degree of relevance even as digital financial services continue to develop.
With this in mind, while ETH has remained prone to volatility, analysts appear to largely back the cryptocurrency to turn its fortunes around in a matter of weeks or months.
The DeFi Gamechanger
Decentralized finance has exploded onto the cryptocurrency scene in the past few months, and suddenly the market surrounding DeFi is having to come to terms with the fact that there are unprecedented volumes of money wrapped up in smart contracts and insurance built on blockchains.
Fundamentally, DeFi is the realisation of the idea that cryptocurrency technology can be utilised to create secure financial services without the need for middlemen to mediate and broker deals. In blockchain-generated smart contracts, funds can automatically be transferred on the completion of pre-determined requirements. As funds are decentralized, no central banks are required to complete transactions.
Speaking to Forbes, Simon Peters, Bitcoin and crypto analyst at eToro said: “Following a challenging number of weeks for many crypto-assets, ethereum’s price increase shows it is one of the main alts leading the market.”
“I agree with [the aforementioned] Glassnote’s reports that Bitcoin is no longer investors’ first steps into crypto—many new investors may be entering the market directly into Ethereum or DeFi protocols, rather than choosing bitcoin as their first or only crypto investment as they did in the 2017 crypto bull run.”
Write Off Bitcoin at Your Peril
Could Ethereum ride the wave of its blockchain’s popularity and hit four or five-figure values over the coming months and years? Technology is certainly on its side ahead of direct rivals, but Bitcoin is used to being written off by now.
Before Bitcoin’s famous rally in 2017, speculation was rife that the cryptocurrency market was a bubble waiting to burst, however, it’s maintained a consistent value in the years since, despite widespread market volatility.
Writing Bitcoin off has made analysts look foolish ever since the arrival of the cryptocurrency scene. As Jon Pearlstone of Crypto Patterns stated: “Since Bitcoin’s breakout above the key price level of $9,500 in late July, Bitcoin has ranged between $10,500 and $12,500.”
“While there are some bearish signs, the bulls have the edge with a bullish pattern on the weekly chart. The target is in the $15,000 range, which would be a retest of the 2019 high of $14,000. If Bitcoin can break out above that resistance level with strong volume, there are longer term patterns with prices much higher, starting with a test of all-time highs around $20,000.”
The poor performance of global financial markets may be hindering Bitcoin and Ethereum’s development in this brave new world of DeFi, but what’s certain is that the rest of 2020 will provide investors with a strong insight into how the crypto market will play out in the future.
Will the technologically advanced Ethereum blockchain cause ETH to catch up with the long term market leader, BTC? In the wild world of crypto, only time will tell.