- Though Ethereum was never created as an alternate monetary system, ETH tokens meet many of the properties of money and can theoretically be used as a medium of exchange.
- I do not believe the free market will converge on ETH as money due to an undefined monetary policy, poor fiscal policy, and higher centralization.
- Ethereum and Bitcoin are not direct competitors, though the idea of a digital barter economy is worth exploring.
The purpose of this article is to establish the fact that Bitcoin (BTC-USD) and Ethereum (ETH-USD) are not direct competitors. I first examine the purpose behind the two cryptocurrencies as stated in their respective whitepapers. I then examine the monetary and fiscal (fees) policies behind each, concluding that Bitcoin is superior money in that regard.
However, there is nuance in this debate. Because Ethereum tokens are data stored on a distributed ledger similar to Bitcoin, anyone can technically use Ethereum as money. Will the crypto economy converge on the soundest money, or enter a pseudo-barter economy? Though I believe in the former, the latter is a possibility worth exploring.
The Stated Purpose of Each
One needs to look no further than the title of the whitepaper to find the purpose of Bitcoin. It is a peer-to-peer electronic cash payment network and a trustless monetary system.
Though popular for cross-border payments and large wire transfers due to its ability to disintermediate the time and fees of legacy systems, Bitcoin is limited as a global medium of exchange because only peers with a Bitcoin wallet can accept payments. Most Bitcoin advocates use it as a store of value due to it being the only currency in existence with an unforgeable supply cap.
(Source: Bitcoin Whitepaper)
Ethereum is a decentralized application protocol with three stated use cases: 1) financial. 2) semi-financial. 3) non-financial. Financial use cases include stablecoins, derivatives, asset tokens, or sub-currencies. Semi-financial examples include self-executing bug bounties or insurance premium payouts. Non-financial examples include decentralized file storage or decentralized autonomous organizations. Ethereum has an entire sub-economy of network tokens using token standards such as ERC-20 for DeFi and ERC-721 for NFTs. As the whitepaper suggests, Ethereum has more in common with Apple iOS (NASDAQ:AAPL) or similar operating systems than traditional currencies.
(Source: Ethereum Whitepaper)
A Digital Barter Economy
Despite their stated use cases, all Bitcoin and Ethereum tokens are fungible, divisible, durable, portable, scarce, and, for the most part, acceptable. On a technical level, Ethereum solves the gold-dollar dilemma just as well as Bitcoin. While Bitcoin was created as global peer-to-peer money, Ethereum was not. Ethereum tokens are required to interact with the Ethereum application ecosystem. In essence, it is the money of the Ethereum-based DeFi/NFT network.
If all crypto assets are trustless digital value transfer systems, the crypto economy could run on a barter system whereby individuals pay with and accept their preferred token. With increased multi-token wallet capability and atomic swaps, automatic exchange contracts between two different crypto assets, anyone can pay in BTC or USDC (USDC-USD) and receive ETH, DOGE (DOGE-USD), fractionalized real estate, etc.
The technology will soon exist for any incoming crypto asset to automatically swap to a merchant’s preferred token. For example, a real estate company can use fractionalized real estate as currency if it wished. The idea of a digital barter economy is extremely interesting. However, I see the free market converging onto one form of money for the reasons outlined below.
Why ETH Will Not be Global Money
An economy relies on a single unit of account to measure value for convenience’s sake. When I say something is worth $320.80, that statement means something to every individual. Heterogeneous units of account, on the other hand, make value transfers overly complex. Saying that something is worth 689,199 satoshis, 0.095 ETH, or 1,773.68 DOGE depending on one’s preference is overly cumbersome.
I believe that if any nation or society adopts a crypto asset as its store of value, medium of exchange, and unit of account, it will be Bitcoin and not Ethereum. The free market will converge on Bitcoin for three reasons. 1) It has a defined monetary policy. 2) It has a usable fiscal policy. 3) It is sufficiently decentralized.
Undefined Monetary Policy: Ethereum does not have a supply cap and the current number of coins in circulation can only be approximated. The approximation results from Ethereum’s use of an account model as opposed to Bitcoin’s unspent transaction output model. Though not exact, an account-based transaction model better supports the complex commerce of smart contracts.
Hard money enthusiasts oftentimes dismiss Ethereum as no better than fiat currency. When asked about Ethereum’s total circulating supply, Vitalik Buterin, cofounder of Ethereum, claimed that “we roughly know what it is according to protocol rules.”
I believe that an unknowable supply and approximate monetary policy makes Ethereum less suitable as a global money. However, as the figure below shows and the whitepaper states, the “supply growth rate as a percentage still tends to zero over time.” Vitalik also pointed out in June 2020 that Ethereum’s supply was 40 million coins less than expected from estimates in the original whitepaper. Ethereum is harder money than the dollar, but its hardness can only be approximated.
Unusable Fiscal Policy: Fiscal policy refers to the transaction fee structure of the crypto asset due to its similarity to a value-added tax. Ethereum currently has high demand for block space and low scalability—at least until the release of ETH2. This results in exorbitantly high fees for executing transactions. The digital art platform OpenSea currently accounts for the highest overall amount of transactions and 10% of all gas fees according to etherscan. Therefore, currently high gas fees are a direct result of the NFT craze.
When a $5 transaction incurs $485 in gas fees, the network becomes unusable for daily transactions. Though this is an extreme example, it goes to show how scalability issues prevent ETH from being suitable money. Gas fees fluctuate, yet the average gas fee is $49.88 as shown below. Unless a protocol has an established scaling solution such as Bitcoin’s lightning network, it cannot be used as transactional money.
In June 2016, a hacker exposed a bug in The DAO, an Ethereum-based decentralized venture capital organization, to successfully drain $70 million worth of Ethereum. The price of ETH dropped from $20 to $13, as The DAO contained roughly 15% of all tokens in circulation. After a failed soft fork to invalidate the hack, Ethereum developers banded together to hard fork the protocol and return the stolen funds with majority approval from token holders. Ethereum Classic (ETC-USD) is the pre-hack network.
An active developer team is both a pro and con of the Ethereum protocol. For sound money, it is a glaring con. Choosing Ethereum as money substitutes central banks with the Ethereum Foundation. The DAO was essentially an example of the foundation catering to a “too big to fail” organization.
The above example also demonstrates a willingness and ability to change the protocol if and when necessary. This may be a positive thing for a tech company. However, when the purpose of blockchain-based money is to remove the exorbitant privilege of those who operate close to the monetary spigot, Ethereum is inadequate.
This article is not a bear case for Ethereum. Just as I believe that Ethereum will never be considered global sound money, I believe that Bitcoin-based smart contracts will never surpass Ethereum once they come to fruition. Instead, it is a call to realize the strengths and weaknesses of each and value them accordingly. Ethereum is a decentralized application protocol powering the DeFi and NFT movements. Bitcoin is blockchain-based sound money.
Fourth-Largest Ethereum Whale Pounces on Large-Cap Altcoin, Accumulating $580,000,000 in Crypto
One mega-whale just loaded up on an Ethereum (ETH) token that powers a popular crypto marketplace.
The blockchain-transaction tracker WhaleStats reveals that the unnamed wallet received 14,000,000 FTT, the native token of the FTX exchange. The transaction was worth $581,444,018 at time of sending.
The whale now holds over $1.2 billion worth of FTT with a total value exceeding $3.8 billion and is now ranked fourth on the WhaleStats’ list of the top 1000 Ethereum wallets, excluding the ETH cryptocurrency itself.
Popular crypto analyst Smart Contracter is also showing interest in FTT, noting that the Fibonacci ABC spacing between sharp highs and lows on the coin’s historical chart offers encouraging signs for future price action.
The trader says in a tweet to his 196,000 followers,
“Been a long while since I played FTT but I actually think a major bottom is in and we go to [all-time highs] from here.
Perfect ABC on super-high timeframes where ABC came below the 0.618 and bull/bear periods are almost 1:1 extension.”
In late October news broke that FTX had purchased advertising airtime during the February 2022 Super Bowl as part of a wider push to bring crypto awareness to the mainstream.
Last week FTX also announced the launch of a marketplace for Ethereum-based non-fungible tokens (NFTs).
At time of writing, the FTT token is mostly flat on the day and trading at $42.73.
Top Trader Says Ethereum Looks Exceptionally Bullish, Unveils Targets for Bitcoin and Explosive Altcoin Terra
A popular crypto analyst believes Ethereum (ETH), Bitcoin (BTC) and one altcoin are about to blast off and leave the recent market-wide slump in the dust.
The pseudonymous crypto strategist and trader Kaleo tells his 454,000 Twitter followers that ETH’s time to shine has arrived as the “king” of the layer-1 blockchain protocols.
The analyst says,
“ETH is so bullish after the most recent flush it’s not even funny.
We’ve seen a major rotation play among the alt [Layer-1s] the past few months.
It only makes sense that the king of the L1s finally has a chance to suck liquidity from the rest of the market and have a run of its own.”
Ethereum is about even on the day, trading for $4,346 at time of writing.
Kaleo next looks at Bitcoin and says he still believes the top crypto will reach at least $100,000 during the current cycle.
“I’ve said it before and I’ll say it again – I still expect to see Bitcoin have a parabolic move to top out at $100K+ this cycle.
I’ll gladly start scaling out around $150K. I expect it to go higher, but I’m not concerned with nailing the top. Until then, just keep stacking.”
BTC currently sits at $50,900 after having battled back from a flash-crash low around the $43,500 level on December 3rd.
Lastly, the crypto analyst lays out his price prediction for the Terra (LUNA) protocol, whose native token LUNA underpins a suite of decentralized stablecoins.
Kaleo tells his followers that Terra reaching the $100 threshold is inevitable.
“LUNA going to $100 from here is only a matter of time.”
LUNA has seen some wild price action in recent days, with the altcoin tumbling from $69.66 to $53.64 late last week before surging to $77.37 on Sunday.
The 10th-ranked crypto has since corrected but is back up 5% on the day to $70.74.
Bitcoin and Ethereum Correct Lower, Key Supports Nearby
- Bitcoin price could revisit the USD 48,000 support zone.
- Ethereum might find bids near USD 4,200, XRP is struggling to stay above USD 0.80.
- XTZ is up over 25% and trading above USD 5.20.
Bitcoin price attempted an upside break above USD 52,000 but failed. BTC started a fresh decline and traded below USD 50,500. It is currently (12:07 PM UTC) declining towards USD 49,000 and it could even test the key USD 48,000 support zone.
Besides, most major altcoins are also moving lower. ETH topped near USD 4,420 and declined below USD 4,300. XRP could accelerate lower if it settles below USD 0.80. ADA might find support near the USD 1.30 level.
Total market capitalization
After a failed attempt near USD 52,000, bitcoin price started a fresh decline. BTC traded below the USD 51,200 and USD 50,500 support levels. It even broke the USD 50,000 level and is now down by 4% in a day. An immediate support is near USD 49,000. The next major support is near the USD 48,000 level, below which the price could move into a bearish zone.
On the upside, the price could struggle to climb above USD 50,500. The main resistance is now forming near USD 53,200.
Ethereum price also followed a similar pattern after it failed to clear the USD 4,420 resistance. ETH is down 3% and traded below the USD 4,300 support. It even spiked towards USD 4,250. On the downside, an initial support is near the USD 4,220 level. The next key support is near the USD 4,200 level, below which the bears might gain strength.
On the upside, the bulls may perhaps struggle above USD 4,350. The next key barrier is now forming near the USD 4,400 level.
ADA, BNB, SOL, SHIB, and XRP price
Cardano (ADA) is down 6% and is trading near the USD 1.355 support level. If ADA slips below USD 1.32, it could move into a negative zone. The next major support could be USD 1.30 or USD 1.288.
Binance coin (BNB) is moving lower towards the USD 565 support. If the bears remain active, the price could decline towards the USD 550 support. If not, there might be a move towards the USD 580 and USD 585 levels.
Solana (SOL) is down 8% and there was a break below USD 190. The price is now testing the USD 185 support. If there is a downside break, the price could decline towards the USD 175 level.
SHIB is also moving lower and trading below the USD 0.0000365 level. The next key support is near the USD 0.0000350 level. Any more losses may perhaps lead the price towards the USD 0.0000335 level.
XRP price struggled to stay above the USD 0.832 level. It is moving lower and testing the USD 0.800 support. If there are more downsides, the price could decline towards the USD 0.780 level. On the upside, the price might face resistance near USD 0.835.
Other altcoins market today
Many altcoins are down over 8%, including LRC, KDA, HNT, MANA, EGLD, BAT, LUNA, QNT, IOTX, GALA, NEXO, and SAND. Out of these, KDA declined 16%, dropping towards USD 10.00. Meanwhile, EOS and XTZ are up 10% and 25%, respectively. EOS is still down 10% in a week, while XTZ trimmed its weekly losses to 5%.
To sum up, bitcoin price is moving lower below the USD 50,000 level. If BTC slides further, the key USD 48,000 support might come into play in the coming sessions.