‘The story of Ethereum cannot be told without the mention of Bitcoin. But the story of Bitcoin will always be complete without the mention of Ethereum.’
A ‘flippening’ on Bitcoin (BTC) will happen. But is not Ethereum (ETH) or any other one cryptocurrency to deliver it.
And this is not an argument I make because Ethereum for the first time in late September 2018 lost the second spot on the Coinmarket.com list to Ripple (XRP).
I would make the same argument with Ethereum still on the second spot.
It is my opinion that to anyone who is not emotionally or financially invested, it is obvious that it will take more than it is possible for Ethereum to overtake Bitcoin on the CoinMarketCap chart.
But first, why is this even a topic of discussion?
The discussion of Ethereum —rather Ether— having a greater market capitalization than that of Bitcoin arose on forums in 2016 when the price of Ethereum steadily rising and there seemed to be a growing interest from the public. At the same time, the Bitcoin market share was fast shrinking—but the significant value was not moving to Ethereum.
In fact, the Bitcoin market capitalization has continued to grow over the years.
Nevertheless, supporters of the Ethereum project and a few others misinterpreted the trends and predicted a point where Ethereum would be worth more than Bitcoin in market capitalization. They christened this point ‘the Flippening point,’ and they began expecting and hoping for it.
This narrative has acquired a life of its own. There is even a website set up to help people watch it happening.
I believe the expectation of a ‘flippening’ happening is driven primarily by two categories of people.
One comprises of individuals who have come to hate Bitcoin primarily because they had a vision for it but were not allowed to implement it. They hope it fails in one way or another and proofs that their vision should have been the one to pursue.
And is in this category where you find the likes of Roger Ver, who has been predicted many times the fall of Bitcoin and backed alternative coins such as Bitcoin Cash. In May, he was quoted by The Independent explaining the flippening phenomenon as a foregone conclusion.
The second category of those who push the flippening narrative comprises of enthusiasts of Ethereum who love the project so much—in particular because they have invested in it, they have helped build it or they have bought the idea it is a superior blockchain—and want to see it become the best crypto project out there.
For both groups it is more of a wishful thinking than a position supported by any objective facts.
It is hard to find someone with a sober and objective view who arrives at the conclusion that Ethereum will have more market capitalization than Bitcoin in the next five years or even ever.
You probably thinking I am a Bitcoin absolutist. No, I am not. I see a lot of potential to solve the many problems society deals with in the Ethereum project.
I also see Bitcoin and Ethereum as far from being exactly the same. In fact, they are designed to be two very different things.
Bitcoin is primarily a store of value and medium of exchange. Hopefully it is going to become a unit of account in future. Meanwhile, Ethereum is a virtual machine on which we can run all kinds of applications and store all kinds of data.
In fact, when someone mentions Bitcoin what is on their mind is a coin. But when talking about Ethereum, the majority refer to more than a coin. Aside from Ether, its native coin, the Ethereum blockchain supports numerous other coins, tokens, smart contracts and other forms of decentralized applications (dApps).
In essence, the two blockchains have different metrics for measuring their success, or lack of it.
And on that ground alone it is almost futile to consider them as competitors.
But for arguments sake, let me tell you why I think the market cap of Ether will never be more than that of Bitcoin.
1. High positive correlation between Bitcoin and Ether
As the crypto market stands right now, there is a very high degree of positive correlation between Bitcoin and all other crypto assets, including Ether. The price movement of the crypto assets mirror one another in a way that their graphs can match perfecting on top of one another.
And this is because the primary factors or forces that affect their demand and supply are the same. The cryptocurrencies also basically share the same investors who are hugely motivated to buy and sell them at the same times.
Except for very few instances, every time Bitcoin has lost or gained value, Ether has followed suit. As long as this is the case, there is hardly a chance of Ether overtaking Bitcoin in terms of market capitalization. And we do not see the break of the positive correlation in sight.
2. Bitcoin loses market cap share to growing list of cryptos
Indeed, Bitcoin is continuously losing the percentage market cap share. In January 2009, the crypto market capitalization was 100% Bitcoin. That has gradually decreased. However, much of what Bitcoin is losing is going to the new crypto assets coming to the market
With each new crypto entering the market, Bitcoin’s share shrinks by how much the market cap of new coin is valued. At the moment Bitcoin has slightly over 50% of the market capitalization.
So in that perspective, a flippening is about to happen. But it is not a single coin overtaking Bitcoin, but a combination of the market cap of all the rest being more than that of Bitcoin.
Coinmarket.com adds about thirty new crypto assets to its list every month. Of course others are dropped but the net residue is almost always in the positive.
And just like any new entrant, when Ethereum came a long it took a huge chunk of the Bitcoin’s market share but it has not grown a lot ever since. If the market had remained to be only Bitcoin and Ethereum then the scenarios could be different.
In fact, as more coins come into the market, Ether also sees its own share shrinking.
3. Bitcoin will always enjoy the first mover advantage
The story of Ethereum cannot be told without the mention of Bitcoin. Meanwhile the story of Bitcoin will always be complete without the mention of Ethereum.
The majority of people still learn about cryptocurrencies for the first through Bitcoin. They are introduced to Bitcoin first then others.
Bitcoin still enjoys a lot more searches on Google than Ethereum by a big margin, and the trend doesn’t that changing . Bitcoin has a lot more Reddit followers and more Twitter mentions than Ethereum.
Bitcoin has more infrastructure support than Ethereum. These include the number of wallets and even the number of developers working directly on the project.
The only way the first mover advantage will stop working for Bitcoin it is if the community stops innovating and abandons it. That is still very highly unlikely. There is no reason for this to happen.
4. Ethereum is facing fierce competition
Ethereum is designed as a virtual computers that supports third party decentralized applications and smart contracts. In the recent years, we have seen the rise of projects that offer options for those seeking to launch and operate applications and smart contracts on the blockchain.
These alternative projects are killing Ethereum’s monopoly and eating away its share.
The new blockchain virtual machines include the likes of EOS, NEO, Stellar, Tron and Cardano. They promise better user experience, high throughput and better governance structures.
Even Bitcoin is making steps to challenge Ethereum is this space. Through Rootstock (RSK), a platform on top of it, third parties can create, manage and run smart contracts using the Bitcoin blockchain.
5. Technical weaknesses
And the reasons do not end with market trends. Technical differences and robustness is also a factor that stands in the way of Ethereum overtaking Bitcoin on the CoinMarketCap list.
The Bitcoin blockchain has had the highest exposure to all kinds of technical strains and came out stronger. While Ethereum has had its own share, technical bugs are being discovered more often than in the case of Bitcoin.
Ethereum is also struggling with building capacity and scaling. For a blockchain meant to support more than just payments, it is still very far from being ideal in this regard.
The capacity challenge was well demonstrated in late 2017 when CryptoKitties, a game application, clogged the system because of a high number transaction requests it generated.
Bitcoin will continue losing the percentage market capitalization share. But this will be more because of new cryptocurrencies launching. Yes, we are approaching a point where Bitcoin market capitalization will be less than 50%.
However, that doesn’t mean it will cease being the biggest cryptocurrency. The second coin might have as low as 10% of the total crypto market cap. For example, at the moment, while Bitcoin has a market cap of about US$60 billion, the second coin is about US$15 billion.