Ethereum’s attractive price, options chain, merge, and Metaverse potential could see the flippening come sooner rather than later.
Bitcoin (BTC) is the undisputed king of crypto, so much so that laypeople often use the terms Bitcoin and cryptocurrency interchangeably. It was the first crypto to be invented, and led the charge for the hundreds of altcoins that followed.
However, younger brother Ethereum (ETHER) is rapidly increasing in popularity and fame, both in the general consciousness, and also as a trading opportunity.
And it could well overtake Bitcoin as crypto king within the next three years.
Ethereum price: 4 key tailwinds
1) Price and market cap
According to coinmarketcap, Ethereum’s current market cap is circa $230 billion, while Bitcoin’s is around $456 billion. Or to put it another way, Bitcoin has twice as much money invested into it as Ethereum. However, this could soon change.
One Ethereum is now an affordable $1,900, while one Bitcoin costs $24,000. These historically low prices could represent excellent buying opportunities. However, Ethereum is likely to benefit more than Bitcoin, as the entry cost to buy a whole coin is affordable to the retail investing masses.
This whole share affordability effect is noticeable in the recent stock splits of some of the largest companies in the world. Alphabet, Amazon, and Tesla all saw their market caps rise after their stock splits, as investors are psychologically primed to want to purchase whole shares or coins rather than part-purchases.
This effect could send Ethereum’s market cap closer to Bitcoin’s over the next three years, eventually leading to the ‘flippening,’ the day it overtakes Bitcoin.
2) Options chain
An early sign that the flippening is near has already happened. Earlier this month, Ether flipped Bitcoin for the first time ever on the world’s largest options market, Deribit. On 1 August, $5.7 billion was locked into open Ether options contracts, 32% more than the $4.3 billion locked into Bitcoin on the same market.
Moreover, the number of Ether call options — the right, but not the obligation, to buy Ethereum at a specific price within a given period — has increased substantially. Investors buy call options to increase their profits using leverage when they expect an instrument to increase in value.
Encouragingly, Ether put options, which function in the opposite way, have not risen to match the call demand. This is a bullish sign for the crypto prince, as it signals positive sentiment, especially as the high demand for call options means investors are prepared to pay a premium to buy them.
Further, Bitcoin’s market dominance has slipped to below 40% of the crypto economy, compared to nearly 70% in January 2020. Accordingly, crypto investor Ben Armstrong thinks ‘we are watching the early stages of the Flippening $ETH.’
3) Ethereum merge
The fabled merge has been key to the increased options interest. Now expected to go ahead next month, the merge will see Ether’s underlying blockchain transition from a proof-of-work to proof-of-stake system.
Proof-of-work consensus mechanisms are extremely energy intensive, as they depend on crypto miners to verify transactions. Conversely, proof-of-stake networks require validators to hold a certain amount of tokens to participate, making them much less energy-intensive. This is becoming increasingly important as energy prices skyrocket.
High energy use is a key environmental problem for Bitcoin, which will continue to use the proof-of-work method to verify transactions. But because of the merge, Ethereum could see inward institutional investment from big players who previously steered clear over its environmental impact.
Further, the upgrade will significantly speed up transactions on the network and make using Ethereum as a currency much cheaper.
In addition, many larger Ether investors will likely stake their investment in order to mine more Ethereum on the blockchain. Yields are likely to be generous, as the annual issuance of Ether is going to be slashed by 90% post-merge, hugely reducing supply.
According to Citi, the Metaverse is set to be a $13 trillion opportunity by 2030. And while the different Metaverses utilise their own native tokens, most including — Decentraland, The Sandbox, Axie Infinity, Enjin, and Shiba Inu— are built on the Ethereum blockchain.
In fact, more than 40% of the top 100 cryptocurrencies by market cap are built on the Ether blockchain. Three key factors have led to Ethereum’s popularity as the underlying blockchain for the Metaverse.
The first is its first-mover advantage; widespread adoption has a habit of becoming embedded, and Ethereum is older than many altcoins. Second is its smart contract functionality, an essential feature of any Metaverse. And third, Ether’s largest downside (high transaction fees) is being neutered by the merge.
By 2025, Bitcoin should be looking over its shoulder.