Prepare for the ‘Flippening’ as Ethereum Challenges Bitcoin’s Dominance
Let’s be honest — being in second place is no fun. For years, fans of Ethereum (CCC:ETH-USD) have had to accept the fact that Ethereum trails Bitcoin (CCC:BTC-USD) in terms of market capitalization, name recognition and press coverage.
Indeed, Bitcoin has been the most dominant cryptocurrency since its inception back in 2009. Every other cryptocurrency, including Ethereum, is just an “altcoin” compared to Bitcoin.
Change might be afoot, however. Ethereum’s comparative stability could make it more attractive as an investment among cryptocurrency aficionados.
Could Ethereum overtake Bitcoin as the most dominant crypto coin in 2021? Anything’s possible, I believe, in the fast-changing world of decentralized assets.
A Closer Look at the Ethereum Price
Ethereum’s recent breach of the key $2,000 level is truly an event for the history books. This event makes the 2017-2018 rally to $1,000 look like a footnote.
You may recall the crash that followed the 2017-2018 price run-up. Hopefully, the current bull market will be much more sustainable.
So far, the rally seems to be holding up. On April 15, 2021, Ethereum hit a 52-week high of $2,641.09. However, this was followed by a pullback, with ETH trading at $2,257.70 on April 24.
That drawdown was likely precipitated by a broader crypto-market selloff. And, that selloff may have taken place because U.S. President Joseph Biden revealed that he’s considering a tax hike on wealthy Americans.
Apparently, Biden is seeking to increase the tax rate on capital gains or proceeds earned from selling assets, for people earning more than $1 million per year, from 20% to 39.6%.
B2C2 Japan CEO Phillip Gillespie expects that the market is “going to start worrying about” taxes and regulations.
That might be true, so cryptocurrency holders should bear this in mind and keep their position sizes moderate.
Supply Crunch Coming?
Sometimes you’ll see crypto commentators talking about demand. They’ll have endless stats about the trading volumes and mainstream adoption of Bitcoin, Ethereum and other popular digital tokens.
That’s important — no doubt about it. Yet, there are two equally important forces in the markets: supply and demand.
Cryptocurrency mavens know that Bitcoin has a hard cap of 21 million BTC. Unless the rules are changed, that’s how many Bitcoins will ever be mined.
Thus, Bitcoin has a limited supply, which should make BTC more valuable in the coming years.
However, I wouldn’t go so far as to say that there’s a supply crunch coming soon in Bitcoin — but perhaps we could say this about Ethereum.
Reportedly, Messari researcher Wilson Withum expects that “Ethereum’s net annual issuance will drop substantially following the Phase 1.5 ETH 1 to ETH 2 merger.”
Moreover, Zap Protocol co-founder Nick Spanos expects ETH to “become a deflationary asset,” due to the upcoming EIP (Ethereum Improvement Proposal) 1559 upgrade.
“This feature will reduce the coin supply and have a corresponding effect on the price, creating an attraction point for more buyers,” Spanos explains.
The Big Flip
Bitcoin’s primary attraction, for some buyers, is its limited supply and, therefore, its resistance to inflation.
A supply shortage could make Ethereum even more compelling as an inflation hedge, however. So, is it possible that ETH could steal BTC’s No. 1 position among cryptocurrencies?
Not only is it possible, but there’s actually a name for this event (assuming it happens). It’s called the “flippening,” and it originally referred to the exact moment when Ethereum overtakes Bitcoin in terms of market capitalization.
Apparently, a more recent definition of the flippening would include not only the market capitalization, but also other factors such as the number of active addresses and the number of public reachable nodes.
In any case, the flippening might happen in the near future as Bitcoin dominance appears to be slipping. Bitcoin dominance can be defined as the ratio of Bitcoin’s value to the overall market capitalization of digital assets.
That ratio recently fell to 48%. Reportedly, it’s the first time that Bitcoin dominance broke below 50% since 2018.
The Bottom Line
It’s amazing to consider that someday — maybe sooner rather than later — Bitcoin might not be the No. 1 cryptocurrency.
If you can envision Ethereum overtaking Bitcoin, then today might be a good day to lean more heavily into ETH in your cryptocurrency portfolio.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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