Bitcoin
Will Ethereum surpass Bitcoin? Markus Thielen weighs in
The crypto community has long debated whether Ethereum (ETH) could one day surpass Bitcoin (BTC) in market capitalization – a scenario often referred to as “the flippening”. However, 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
Often called digital gold, Bitcoin consolidated its role as inflation protection and a fundamental asset in the portfolios of “sovereign individuals” around the world. This identity was reinforced in 2017 when Bitcoin developers decided to maintain a block size of 1 MB, emphasizing its status as a store of value rather than a currency.
This strategic move has made Bitcoin particularly attractive during economic uncertainty.
On the other hand, Ethereum’s journey has been full of challenges. Despite playing a crucial role in the 2020-2021 bull cycle with innovations like NFTs and the potential for banking system replacements, Ethereum has struggled with significant scaling issues.
The long awaited Dencun Update (EIP-4844), intended to reduce high gas feesit wasn’t until three years later that these problems became evident.
“Although the Dencun update (EIP-4844) resolved this in March 2024, it was already three years too late. Crypto users (and traders) don’t sit around waiting until a blockchain solves their bottlenecks; Instead, those users move on, and today most of the action occurs at layer 2,” Thielen he said.
Consequently, The dominance of Ethereum in the crypto market decreased from 17.8% to 15.8% after the update. Furthermore, the ETH/BTC trading pair has been in a downtrend since September 2021.
“Forget the BTC turnaround that many predicted,” Thielen boldly noted.
See more information: What is the Ethereum Cancun-Deneb (Dencun) upgrade?
ETH/BTC price performance. Source: Trading View
Reflecting this disparity, Blackrock has shown a strong preference for Bitcoin over Ethereum. The market also reflects this. For example, Ethereum ETFs saw just 15% of inflows in Hong Kong compared to their Bitcoin counterparts, indicating limited investor interest in Ethereum.
Additionally, the regulatory environment continues to be a significant barrier to Ethereum. Recent SEC actions against exchanges like Kraken and Coinbase have left Ethereum’s classification as a security it is not clear. Regulatory uncertainty will only deepen as the SEC Expected to Deny Ethereum ETFs.
Financial indicators also highlight Ethereum’s struggles. The move to what some call “sonographic money” has not had the repercussions that investors had hoped for. Furthermore, Ethereum’s total value locked (TVL) in protocols is much lower than its peak, predominantly confined to staking and re-staking activities.
“The concept of staking on Ethereum became flawed as soon as US Treasury yields became available on the network at much higher yields (5%). At the same time, Ethereum use cases have plummeted. The more people realize this, the lower the demand for ETH will be,” Thielen explained.
See more information: Ethereum reestablishment: what is it and how does it work?
Furthermore, Ethereum lost ground in the stable coin market, a critical area of cryptographic transactions. Tron surpassed Ethereum in USDT issuance thanks to its lower transaction costs, signaling a strategic failure of Ethereum to maintain its market share.
Given these insights, Thielen recommends caution regarding Ethereum.
“Right now, we would be more comfortable holding a short ETH position than a long BTC position, as Ethereum fundamentals are fragile, which is not yet reflected in ETH prices,” Thielen noted.
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