Many elements (price, dominance…) reveal a rise in power of ether. From there to catch up with bitcoin? BFM Crypto takes stock.
In the cryptocurrency ecosystem, some users only believe in one cryptocurrency. They are “maximalists” and there are as many of them as there are cryptocurrencies. These people believe that their cryptocurrency will only go up in strength over the next few months and years. Despite the crypto crash of the past few months, those who hold ether are hopeful.
In the current context of a short-term rebound in cryptocurrencies, ether is making a stronger comeback than bitcoin. According to data from Coinmarketcap, the price of bitcoin has risen 3.8% for the past week, trading Thursday evening around 10:40 p.m. around $24,090. For its part, ether has gained more than 11% in one week, trading at more than $1770. This progression can be explained in different ways, both by the very functioning of the Ethereum blockchain which allows access to many applications (NFT, DeFi, gaming, etc.). The Merge event (see our article here to understand everything about this event), which consists of the Ethereum blockchain going from “proof of work” to “proof of stake” operation scheduled for September 19, is also there. -to be for something.
“A catch-up on the historical trend of ether on bitcoin in the long term is possible”
Do these good figures suggest that ether could one day overtake the queen of cryptocurrencies, bitcoin?
“What seems certain is that ether is rising more as a percentage of price than bitcoin on bull runs. term is possible. But what we also observe is that bitcoin remains a store of value, which means that in the bear market people take refuge more in bitcoin and not in ether. , it will take a lot of bull runs before we see ether catch up with bitcoin”, explains Laurent Pignot, analysis at Zonebourse, to BFM Crypto.
Despite these figures, the price of ether has remained volatile since its inception in 2015. Below $1 during its launch year, the cryptocurrency experienced a first peak in June 2016, trading at $15 before falling back . Its introduction on various trading platforms and cryptocurrency exchanges allows ether to gain momentum, the latter amounting to 800 dollars at the end of 2017. But it is above all applications that have gained momentum in 2020, including the decentralized finance (DeFi) and the launch of Ethereum 2.0 which allowed the cryptocurrency to gain popularity, before reaching as high as $4870 in November 2021. Since this peak, ether has lost more than 64% of its value with the two recent bear markets.
For its part, bitcoin has also had a meteoric rise since its creation in 2009 until today. It was only two years after its creation that the cryptocurrency began to be exchanged for a few dollars, before flying around 1,000 dollars in 2014. But it was especially in 2017 that bitcoin took a meteoric rise in reaching 19,000 dollars, driven by numerous fundraisers in cryptocurrencies (ICO). From 2019, institutional investors begin to enter the market, also driving up the price of the cryptocurrency which reached its highest level at $69,000 in November 2021. Along with ether, bitcoin lost more 65% of its value since its historical peak.
Ether Dominance Soars, Bitcoin Dominance Drops
Another factor is also to be taken into account to understand the trajectory of these cryptocurrencies. We must look at their “dominance”, that is to say their weight in relation to the total capitalization of the cryptocurrency market, today of 1056 billion dollars. To date, bitcoin is the first cryptocurrency in terms of capitalization, with 440 billion dollars on the counter and ether is in second place, with 199 billion dollars of capitalization.
However, according to a graph published by the “ultra sound money” account, the dominance of bitcoin has been in a downward trend for more than 10 years while that of ether has been on an upward trajectory for 7 years.
According to data from Tradingview, bitcoin dominance fell from 95% in March 2017 to 58% in August 2017, before fluctuating over the following years. Bitcoin dominance has declined since the last crypto crash in June, dropping from 48% to 42% in the space of a month. For its part, the dominance of ether has gone from 7% in December 2019 to almost 20% this month, increasing by 2 points for a month.
“Bitcoin has lost its dominance to other cryptocurrencies including Ether which today accounts for almost 20% of market capitalization. Many players are hopeful that Ethereum will become the blockchain where all applications will be built” , emphasizes Laurent Pignot.
Difficult, however, to predict that ether will overtake bitcoin in terms of dominance for the latter.
“If we look at historical data, ether is taking more and more space in the market and bitcoin is losing it, but no indicator can say so far that ether will overtake bitcoin,” he adds. .
The Merge: what impact on ether?
Moreover, the rarity of a cryptocurrency is also its strength. This is one of the factors that explains the popularity of bitcoin whose circulation is limited to 21 million units – more than 19 million being already in circulation to date. For its part, the number of ethers in circulation is unlimited – 120 million ethers are in circulation to date – but the situation could perhaps change.
For now, ether is an inflationary cryptocurrency, that is, it is created in unlimited numbers. But it could become deflationary in the future, meaning it could face more token destruction than creation. Concretely, when a miner on the Ethereum blockchain validates a block, he receives ethers. But since the 2021 Ethereum blockchain update EIP-1559, up to 75% of fees paid to miners are destroyed by “burning” ether, which can lead to some deflationary periods on ether.
If The Merge event, the objective of which is to lower so-called “gas” transaction fees (in ether) succeeds, will it allow ether to become more deflationary and therefore rare?
“After The Merge, the goal is for there to be less user fees. But if the current destructions are linked to transaction fees and they should go down with The Merge, then we don’t yet know how the ethers will be destroyed. We are not immune to new updates on this subject”, underlines Laurent Pignot.
Moreover, what could be the impact on the price of ether of The Merge? At this stage, many investors are already aware of this future transition, and already hold this cryptocurrency.
“Since many investors have already entered Ethereum, we will not expect an exposure of the price of ether. On the other hand, in the darkest scenario, if The Merge goes badly, investors will exit of this market assuming that ether cracks and does not work as expected in the following weeks”, points out Laurent Pignot.
Among the objectives of The Merge is also that of improving the number of transactions per second of ethers. Ethereum boss Vitalik Buterin recently told the Ethereum Community Conference (EthCC) that he expects the Ethereum blockchain to hit 100,000 transactions per second, up from just over 15 at present. A point that should have an impact on the course of cryptocurrency.