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Can ether really “flip” bitcoin?

Notes from the CIO

For several years, there has been speculation in the crypto community around a potential flippening event. This is in reference to ether (ETH), the second largest crypto asset, “flipping” bitcoin—that is, reaching a larger market cap than the world’s largest cryptocurrency.   

Despite underperforming Bitcoin year to date, Ethereum's unique advantages and persistent demand drivers position it well for future growth and we believe the flippening is still possible.

Let’s look at five potential catalysts that could together help ETH make a big move in this direction in the coming months.


1. ETFs in the US: Last week, the SEC approved the listing of several spot ether ETFs. While it may be months before these ETFs are trading, this is a significant milestone for Ethereum and underscores the growing institutionalization of this asset class. ETFs will give institutional investors easier access to ETH, potentially driving up demand and price. The record-breaking inflows seen in bitcoin ETFs this year indicate strong crypto demand, suggesting that inflows for ether ETFs could surpass $5 billion in fresh capital during the first few months of trading. This projection is based on the assumption that the US market will adopt ether ETFs in proportions similar to what has been seen in other regions where both bitcoin and ether ETFs are already available.


Source: AUM for each ETF/ETP is from Bloomberg, accessed May 21, 2024 


2. US election outcome: It’s no secret that the current administration has taken a less-than-friendly approach to the regulation of crypto. A new administration would very likely present a dramatic shift in its view of ETH and other crypto assets, opening up the potential for increasing regulatory clarity and the opportunity for Ethereum and its ecosystem to grow in the largest financial market in the world. But regardless of the election outcome, there is evidence of growing bipartisan support for creating a more sensible regulatory environment for crypto assets.   

3. Dovish monetary policies: If the Federal Reserve and other central banks decide to cut interest rates or implement quantitative easing (QE), Ethereum could benefit significantly. Lower interest rates typically drive investors to seek higher returns in alternative assets, including crypto assets. Furthermore, QE increases liquidity in the market by injecting more money into the economy. This additional liquidity often finds its way into higher-yielding investments, such as ETH and Decentralized Finance (DeFi) applications. DeFi platforms offer various financial services like lending, borrowing, and earning interest on crypto assets, which become increasingly attractive in a low-interest-rate environment. As a result, both ETH and its associated DeFi ecosystem could see heightened demand and price appreciation under dovish monetary policies.

4. Increase in transaction volumes: The growth of tokenization and other Ethereum use cases is predicted to be a multi-trillion-dollar market over the next decade. As more assets are tokenized and more transactions occur on Ethereum, transaction volumes will rise. Higher transaction volumes can drive demand for ETH, increasing its value. Additionally, Ethereum's strong developer ecosystem, the utility of ETH as DeFi collateral, and its decentralized and secure mainnet further support its growth. 

5. A new killer app: Stablecoins have emerged as a significant application for smart contracts. In emerging markets, particularly in countries with stringent capital controls due to high inflation, stablecoins are growing rapidly as people seek alternatives to protect their wealth. In these markets, stablecoins could disrupt traditional financial services like payments, remittances, and banking. Ethereum is uniquely positioned to benefit from this as it remains by far the most widely used stablecoin network.   

But we believe stablecoins are just the first of many potential “killer” applications. Tokenized money market funds are likely to follow, offering low-risk returns in a high-interest-rate environment and paving the way for global, digital-native investing. Moreover, other applications outside of finance might emerge in the next 12-18 months. Identity solutions and Decentralized Physical Infrastructure Networks (DePIN) could see accelerated adoption, driven by advancements in AI.


A rising tide of demand

Last fall, I wrote about Ethereum being crypto’s sleeping giant. Ethereum is, of course, not the only smart contract platform that has been experiencing growth. It has been facing increased competition from platforms like Solana and Avalanche. While some have suggested this might weaken the ETH investment case, we believe a rising tide lifts all boats and the demand for smart contract-based applications will create an environment where many different networks can thrive, even if Ethereum remains the dominant platform for the foreseeable future. 

Uncertainty around which network will dominate the crypto landscape or receive more regulatory clarity will be a long-term fixture of this market. This is one of the reasons why investing in a basket of crypto assets like the Nasdaq Crypto Index, as opposed to single-asset investing, can benefit investors over time. Regardless of whether or not ETH ever flips BTC, crypto network development continues to mature, presenting significant opportunities for investors with a long-term investment horizon.



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