TLDR;
- Post merge, network power consumption goes down by ~99.95% and you can get a risk-free yield of 4-5%
- Ethereum’s ecosystem is likely already more valuable than Eth’s market cap
- Most of the significant Web3 innovations happened first on Ethereum
- It has a functioning governance model
5 Reasons why Ethereum may finally flip bitcoin
The Merge is being coordinated by various teams on these calls. It’s incredible that the activities being coordinated here are being syndicated as crypto market intelligence by financial research departments. It just goes to show how far the widespread adoption of cryptocurrencies has come during the past few years.
At the time of writing, the Merge is slated for mid-September. Crypto markets have already been pricing this in due to the significant price appreciation Ethereum has seen during the past month which is up roughly 60% versus bitcoin’s 15% gain.
Increasing Market Capitalisation
This increase in capitalisation also means that Ether is gradually eroding bitcoin’s market capitalisation, with bitcoin’s just shy of $450bn versus Ethereum’s $200bn (next in line is Binance Smart Chain with $50bn). It is feasible that in the months following the Ethereum Merge, we could see Ethereum’s market capitalisation eclipse or flip bitcoin’s. The flippening as it is known in the Ethereum community has been speculated on for some time, but I genuinely believe that the Merge could be the catalyst for this event to finally happen.
ESG Criticisms
During the most recent crypto bull market, we saw a significant number of institutions embracing cryptocurrencies and starting to hold them on their balance sheets. The investments were typically dominated by bitcoin and Ether. However, against a background of ever-increasing scrutiny of corporate ESG activities, the environmental impact of these cryptocurrency networks is something that does not sit well with many investors.
When the Ethereum Merge takes place, all of a sudden, these institutional investors will have an out. By holding Ether, these ESG criticisms go away, and this is something that will be incredibly attractive to them and their shareholders. Hence I believe there will be significant outflows from bitcoin into Ether.
There are many other cryptocurrencies that already use proof of stake consensus, however, due to the fact that Bitcoin and Ethereum make up almost 60% of the cryptocurrency market capitalisation, more risk-averse institutional investors are unlikely to hold significant positions in some of the alternatives.
Risk-Free Yield
The huge reduction in power consumption isn’t the only benefit of the Merge. Another factor that will be incredibly valuable to all holders of Ethereum is the yield that becomes available. All holders of the Ether cryptocurrency will be able to obtain a risk-free yield in the 4-5% range which again will be very attractive to investors.
Ecosystem Value
The other factors Ethereum has in its favour aren’t specific to the Merge, but they are very important signals which reinforce why the overall value of Ethereum is likely to continue to grow. The first of these is the value of the ecosystem that has been built on top of Ethereum. This is in the form of tokens such as utility tokens used for project governance such as ENS, Compound, Uniswap, etc. and stablecoins such as USDC as well as NFTs.
Well functioning Governance Model
Finally, and potentially most importantly of all, which is the reason the Merge is actually going to happen is the community itself. The Ethereum community is well functioning and able to enact major changes to the protocol. Between Viitalik, Danny Ryan, Tim Beiko and other folk at the Ethereum Foundation, and other groups like the Ethereum Cat Herders, the Enterprise Ethereum Alliance, plus all of the companies building out the Ethereum ecosystem of which there are too many to list, you have a community that is able to govern itself.
The end result is that Ethereum and other blockchains manage to evolve faster and I do not see a future where bitcoin ever moves away from proof of work consensus or is able to offer a stable yield for its users. I believe this inflexibility will ultimately be detrimental to bitcoin and it’s only a matter of time before it’s reflected in the value of the Ethereum network eclipsing it.
How long this takes remains to be seen, but activity post-merge over the coming months will be insightful.