In a space as competitive and as nascent as the crypto-verse, hopes of top coins flippening one another aren’t uncommon. However, the Ethereum flipping Bitcoin narrative seems as old as time, at least in crypto terms. In fact, the narrative gathered more steam after Ethereum’s London hard fork. Of late, however, a new thesis has been floating around the flippening narrative.
So, what’s the thesis?
Decentralized finance (DeFi), Web3, Decentralized Apps (Dapps), and NFTs are all booming markets and represent a potentially huge market. Now, it can be assumed that a market this huge would eventually become bigger than the market for a global store of value asset like Bitcoin. Additionally, since all these developments are happening on Ethereum, it can be expected that at some point, the market cap of Ethereum is bound to flip Bitcoin.
Ethereum has a larger community of developers than most of its competitors and since it also has a first-mover advantage, it seems to be the safer bet for the DApps platform category. However, with Ethereum killers emerging and taking a fair share of market value from the top altcoin, there is considerable skepticism that ETH will continue to rule the aforementioned categories.
For this thesis to actually be true, the certainty should be that Web3, DeFi, Dapps, and NFTs all end up only on Ethereum, with ETH dominating. However, it would seem that the said thesis might be based on some miscalculations.
What are the misconceptions?
For starters, until Ethereum successfully switches to its proof of stake model, there are still high execution risks. Issues such as failed transactions and front-running, which are still costing users millions of dollars every day, are not subtle.
In fact, just recently, an Ethereum user paid $430,000 in transaction fees for a failed payment. Additionally, while DeFi is destined for meteoric growth, it comes with inherent risks that could plague ETH’s network too.
Further, ETH faces some solid competition from the many Ethereum killers in the market, as well as from other altcoins. Over the last month alone, Polygon flipped ETH’s active addresses and more recently, Litecoin flipped Ethereum in the same metric.
Even though Ethereum’s Total-Value-Locked in DeFi is back around its ATH zone, up by more than 15% and hitting $110 billion, competitors like Solana, Avalanche, and Polygon have gained a decent market share.
More to it than what meets the eye?
Recently, an Ecoinometrics newsletter addressed ETH flipping BTC and presented another hypothesis assuming BTC’s market size would end up in a similar ballpark as that of physical gold. In that case, there will be a bunch of scenarios that could see it rise apart from its status as a store of value over the long term.
One such scenario was that in the long term, Bitcoin could be used as a collateral asset powering the global financial system.
The fact that BTC faces no counter-party risk, its supply is finite, and everything is auditable, makes it a perfectly suited asset to be used as collateral. In that case, its potential market expands considerably while Ethereum could still be catching up. Thus, this hypothesis would invalidate the ETH flipping BTC hypothesis. However, that isn’t all.
Regardless of the future, the ETH decoupling hasn’t happened yet. In fact, the correlation between ETH and BTC is going through the roof.
At the time of writing, the ETH-BTC correlation was 0.91, much higher than top alts like ADA with BTC correlations of just 0.06, as per data from IntoTheBlock.
Additionally, while ETH has been growing faster than BTC during this cycle, the ETH/BTC pair remains much below its all-time high from 2017.
Thus, looks like a possible flippening is far far away for ETH. That, however, in no way means that ETH won’t perform well.