By Christine Kim
At the time, in the late summer of 2018, Ethereum’s most popular decentralized applications (dapps), outpacing even the incumbent CryptoKitties gaming dapp, were gambling dapps that closely resembled Ponzi schemes. LastWinner, a clone copy of another infamous gambling dapp called FOMO 3D, had raised over $7 million in ETH (-1.99%) from users within the span of a week and was eating up one-third of Ethereum’s total computational power, also called hashrate.
Meanwhile, the biggest headline news about Bitcoin were the pending decisions by the U.S. Securities and Exchange Commission (SEC) on two bitcoin (BTC, -2.17%) exchange-traded fund (ETF) applications put forth by ProShares.
As Ethereum attracted retail users and scammers looking to make a quick buck, it seemed the majority of investors and traders serious about adopting cryptocurrencies for a mass audience were focused on Bitcoin.
In many respects, market infrastructure for and regulatory awareness about bitcoin has paved the way for cryptocurrencies like ether to follow.
For example, the classification of being a commodity rather than security in the eyes of the SEC was first granted to bitcoin in 2018 and then for ether in 2019. Exchange-traded funds (ETFs) in Canada were first approved for bitcoin then for ether. Crypto custody bank Anchorage Digital started its lending service with bank-grade, bitcoin-backed loans and only recently expanded its offerings to include ether-backed loans through an FDIC-insured bank this summer.
However, trends are changing, and evidence is mounting to suggest that Ethereum has finally either caught up to or surpassed Bitcoin across a number of key metrics, even as other smart contract blockchains such as Cardano and Solana show promising signs of real adoption and value.
For starters, Ethereum is surpassing Bitcoin in total value transferred on-chain. Using Coin Metrics’ adjusted transaction volume estimates, so far in August $185 billion worth of ETH has been moved on Ethereum while only $180 billion of BTC has exchanged hands on Bitcoin. The last time Ethereum passed Bitcoin in monthly transfer volume was in May 2021.
Every month since June 2020, users have been paying more in fees to send transactions on Ethereum than Bitcoin. In 2021 alone, total fees in dollar terms on Ethereum were four times higher than Bitcoin, suggesting demand for block space on Ethereum is outpacing demand for block space on Bitcoin.
Aside from on-chain metrics, spot market metrics such as the Puell Multiple, historically used to measure the relative value of new coins being mined on a proof-of-work blockchain, suggests the profit-taking opportunities for investors holding ETH have been greater than those for investors holding BTC almost consistently for the past 15 months.
As a result, trade activity for ETH-USD pairs have surpassed or come close to surpassing that of BTC-USD pairs. For the first time ever, aggregated monthly trade volume in the ETH spot markets surpassed that of the BTC spot markets in May; so far in August, trade volumes for ETH are about 90% of the volumes being seen for BTC. This suggests market interest in ETH is trending as high as BTC.
There are also telltale signs in the cryptocurrency derivatives market of a shift in market sentiment placing Ethereum in the same rankings as, if not more bullish rankings than, Bitcoin. According to Alexander Blum, managing director of digital asset investment fund Two Prime, the technical and fundamental measures he uses to evaluate digital assets are beginning to show him that ether is a more promising investment than bitcoin.
“How much people are willing to pay for bitcoin or ether one or three months out into the future is a good sense of the market sentiment around where things are going,” said Blum in an interview with CoinDesk. The “future premium you pay for ether is close to 10%, whereas for bitcoin it’s right around 7% to 8% right now and the amount of calls being bought out into the future is more skewed to the upside on ether than bitcoin.”
Institutions and professional investors that got involved in the crypto industry because of their interest in bitcoin are getting serious about their interest in ether, too, and, more importantly, they are beginning to value ether as a unique investment separate from bitcoin.
Although Ethereum has the first-mover advantage of being the first general purpose, smart contract blockchain in the world, there are a number of up-and-coming competitors gaining user adoption and market value.
Binance Smart Chain, Cardano and Solana are just a few of the platforms that have made headlines this year for wildly popular decentralized applications (dapps) or outlandish token returns of over 1,000% year to date in some cases.
As important as measuring these competitor networks by their potential is through evaluating their developer teams, white papers and roadmaps, it’s equally important to put their performance and current progress into perspective with the metrics used to evaluate the top cryptocurrencies of the industry.
As of Aug. 24, 2021, 24-hour trade volume for the native tokens of the Cardano (ADA (-4.5%)), Binance Smart Chain (BSC) and Solana (SOL) blockchains combined barely exceed half the daily trade volume for ETH. Public data around total value transferred on-chain for these three networks is scarce and regulated derivatives products for ADA, BSC and SOL are almost non-existent.
Other important metrics specific to evaluating the performance of smart contract blockchains include number of dapps, total value locked in dapps and number of active dapp users. For some networks such as Cardano, smart contract functionality to support the development of dapps has yet to be launched. For others such as Binance Smart Chain and Solana that do have smart contract functionality, the total value locked in dapps is multiples lower than the value locked in Ethereum dapps.
As bitcoin paved the way in many respects for the institutional adoption and awareness of cryptocurrencies broadly, the increasing awareness of ether’s use case and design raises the profiles of competing assets and propels investment in their continued development.
This in turn fuels innovation through market competition in smart contract blockchain technology, which presents opportunities for alternative networks to Ethereum to shine and steal market share even as Ethereum continues to evolve.
In an industry like crypto where little is established and much is fueled by speculation, the rise of Ethereum over the past six years stands as an example for how quickly user adoption and institutional interest can catch fire, challenging the status quo.