Bitcoin has cooled off, but Ethereum continues to show significant growth in both development and use. With Ethereum 2.0 looming it has become one of our main focal points in all of crypto.
Bitcoin Shortfalls
Bitcoin has cooled off over the past few months. The market saw an overheated and euphoric rise, followed by a sell off, mostly from short to medium term holders. We know this because we can see the data on chain, you can see which wallets sold, and it is the newer Bitcoin wallets that are selling. Since this market sell off, the demand for Bitcoin has dropped precipitously. Bitcoin has struggled to maintain even the 38k range, I believe this is better for the long term since it cools off the market and allows for a reset. More holders can accumulate at a lower range slowly over time, dropping their average buy in price.
This is a setup for the long term, especially for those who believe Bitcoin will one day rival the market cap of gold. This would bring Bitcoin to around 500,000$ per token[1]. This price target comes from the esteemed Cathie Wood, the CEO of ARK Invest. Cathie is famous for averaging into Tesla during its consolidation phase, back then people would point fingers and mock her decision. She has since gained the respect of her doubters as Tesla rocketed over 1,000%.
Bitcoin struggles when it comes to energy concerns, the asset is earned by energy intensive mining. Over time, better computer parts and technology are needed to stay competitive in the mining market. Ethereum is also currently a proof of work cryptocurrency, however it has grand plans to move to proof of stake, this would cut the energy required by over 99%[2]. Over time more and more BTC will be mined with renewable energy, one because of global demand, and two because is it cheaper for the miner.
Bitcoin also has a very niche use case. Bitcoin can be used as a long-term store of value, that is essentially what is has to offer. The store of value is based on the massive, and decentralized network of Bitcoin miners who validate transactions and produce blocks. While the makes Bitcoin the safest blockchain, it is exactly this that makes me more Bullish on Ethereum currently. Ethereum also offers a network with validators who produce blocks and keep the community safe. However, Ethereum is the base layer of a massive ecosystem, one that has the most developers, albeit high fees and currently slow transactions.
Ethereum has an Active Founder
Perhaps one of the most important differences between Bitcoin and Ethereum is that Ethereum has a very influential and active founder. Bitcoin has an unknown founder and no core foundation or governance (voting rights). There is a nonprofit Bitcoin foundation aiming to demystify the blockchain technology and Bitcoin asset, but it is not inherently associated with BTC. The Ethereum foundation however has CEO and co-founder of Ethereum Vitalik Buterin. When there are questions or concerns, one of the main coders and developers of the actual technology is available for discussion. The foundation provides financial and educational support to projects that are important to the Ethereum ecosystem.
Directly from the Ethereum Foundation: We often describe this as a philosophy of “Subtraction”. This means resisting the natural tendency of organizations to grow and accumulate value within themselves, and cultivating value creation outside the Foundation in the broader Ethereum ecosystem:
- Instead of capturing opportunities, we distribute opportunities for others
- Instead of being defensive when others create value, we’re thrilled
- Instead of trying to matter more, we try to matter less
Ultimately, any philosophy is only as good as the choices it inspires[3].
Reading the above, I as an investor in Ethereum know that the Ethereum Foundation is a non-profit organization dedicated to the growth and sustainability of Ethereum.
Below is just the Defi ecosystem, this does not include all the massive amounts of ERC-20 Ethereum projects.
Environmental, Social and Governance (ESG)
Perhaps the most important aspect of Ethereum for the institutional investor is the approval of from the ESG. ESG “is an evaluation of a firm’s collective conscientiousness for social and environmental factors”[4]. Essentially ESG decides which companies or networks are socially responsible. As the pool of investors on our planet grows with younger and more educated planet conscious Millennials, so does the value of the projects that carry social responsibility.
“Morgan Stanley Bank (NYSE: MS) recently conducted a survey that found that nearly 90% of millennial investors were interested in pursuing investments that more closely reflect the values they hold”.
“By 2018, approximately $12 trillion worth of investment assets were selected using a socially responsible investing strategy. As millennials begin to comprise a larger segment of the total pool of investors, you can expect ESG investing to expand right along with them”[4].
Environmental, Social and Governance (ESG)
Perhaps the most important aspect of Ethereum for the institutional investor is the approval of from the ESG. ESG “is an evaluation of a firm’s collective conscientiousness for social and environmental factors”[4]. Essentially ESG decides which companies or networks are socially responsible. As the pool of investors on our planet grows with younger and more educated planet conscious Millennials, so does the value of the projects that carry social responsibility.
“Morgan Stanley Bank (NYSE: MS) recently conducted a survey that found that nearly 90% of millennial investors were interested in pursuing investments that more closely reflect the values they hold”.
“By 2018, approximately $12 trillion worth of investment assets were selected using a socially responsible investing strategy. As millennials begin to comprise a larger segment of the total pool of investors, you can expect ESG investing to expand right along with them”[4].
Bullish on Ethereum
Since Ethereum is moving to the 2.0 version, which will complete the proof of stake transition, the energy demands will fall rapidly. This will be viewed very positively by the Biden administration, the democratic party generally favors green energy and reducing carbon footprints. Ethereum appears to be sufficiently decentralized, hopefully the SEC will clarify this and keep it out of the regulatory crosshairs. Add this to the Ethereum burning mechanism that was added last year. The more Ethereum is used, the lower the total supply will be. With enough demand, Ethereum could become deflationary adding scarcity to the asset. Over 4 billion Dollars of Ethereum has already been burned using the graphic above from watchtheburn.com. Ethereum still holds the spot as the largest ecosystem with the most developer activity. Ethereum currently holds most of the NFT interest from the larger NFT investors. Ethereum is the most common trading pair for ERC-20 tokens that are built upon the network. This trading demand has been a use case for Ethereum since its inception. Ethereum can also be staked for yield, Bitcoin does not offer this possibility. Above all, Ethereum is safe, other layer 1 blockchains may be faster and currently able to support more volume. Ethereum maintains the top spot because it has been tested and developed for so many years, it brings the security in force. Combine all these reasons together, this is the thesis. We believe the combination of positives, with the minimal downsides will have Ethereum outperforming Bitcoin for the next several years. Please remember to do your own research, the goal of our articles is to provide a tool to assist in your own research. None of this is financial advice, stay safe out there. Check out the next part of the series Part II.
[1] https://www.yahoo.com/now/forget-cathie-wood-500k-bitcoin-183000574.html
[2] https://blog.ethereum.org/2021/05/18/country-power-no-more/
[3] https://ethereum.foundation/philosophy/
[4] https://corporatefinanceinstitute.com/resources/knowledge/other/esg-environmental-social-governance/
