The cryptocurrency community has long debated whether Ethereum (ETH) will ever surpass Bitcoin (BTC) in market capitalization. This scenario is often referred to as “flippening.” But Markus Thielen, head of research at 10x Research, remains skeptical.
According to Thielen, Ethereum's weak fundamentals and recent performance trends strongly suggest that Bitcoin will maintain its dominance.
How Ethereum is falling behind
Bitcoin, often referred to as digital gold, is solidifying its role as a hedge against inflation and a key asset in the portfolios of “sovereign sovereigns” around the world. This identity was reinforced in 2017 when Bitcoin developers decided to keep Bitcoin's block size at his 1MB, emphasizing its status as a store of value rather than a currency.
This strategic move has made Bitcoin particularly attractive amid economic uncertainty.
On the contrary, Ethereum's journey has been full of challenges. Ethereum is suffering from significant scaling issues, despite playing a key role in the 2020-2021 bull cycle due to innovations such as NFTs and the potential for replacement of the banking system.
The long-awaited Dencun upgrade (EIP-4844), aimed at reducing high gas bills, arrived just three years after these issues came to light.
“The Dencun upgrade (EIP-4844) solved this problem in March 2024, three years too late. We're not waiting. Instead, they've moved on and most of their actions are now happening on Layer 2,” Thielen said.
As a result, Ethereum's dominance in the cryptocurrency market decreased from 17.8% to 15.8% after the upgrade. Additionally, the ETH/BTC trading pair has been in a downtrend since September 2022.
“Forget about the BTC reversal that many were predicting,” Thielen boldly stated.
Read more: What is the Ethereum Cancun-Deneb (Deneb) upgrade?
Reflecting this disparity, BlackRock has expressed a strong preference for Bitcoin over Ethereum. The market also reflects this. For example, in Hong Kong, the Ethereum ETF received only 15% of inflows compared to the Bitcoin ETF, indicating limited investor interest in Ethereum.
Additionally, the regulatory environment remains a major barrier for Ethereum. Recent SEC actions against exchanges such as Kraken and Coinbase have made Ethereum's classification as a security unclear. Regulatory uncertainty will only deepen as the SEC is expected to reject Ethereum ETFs.
Financial indicators also highlight Ethereum’s struggles. The move to what some call “ultra-sound money” hasn't resonated with investors as much as expected. Furthermore, the Total Value Locked (TVL) in Ethereum's protocol is much lower than its peak and is primarily limited to staking and re-staking activities.
“The concept of staking Ethereum became flawed as soon as US Treasury yields became available on-chain at much higher yields (5%). At the same time, Ethereum use cases plummeted. The more people understand this, the less demand there will be for ETH,” Thielen explained.
Read more: Retaking Ethereum: What is it and how does it work?
Additionally, Ethereum has lost ground in the stablecoin market, an important area of cryptocurrency trading. Tron has surpassed Ethereum in USDT issuance thanks to lower transaction costs, suggesting a strategic failure for Ethereum to maintain market share.
Given these insights, Thielen recommends caution when it comes to Ethereum.
“At this point, it is safer to hold a short ETH position than a long BTC position as Ethereum fundamentals are fragile and have not yet been reflected in the ETH price,” Thielen said.
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