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Ethereum (ETH/USD) vs. Bitcoin (BTC/USD) and BTC Dominance

11/21/2018 - Backdrop: Crypto market was a bubble in 2017 and early 2018, and has since been deflating. We recently got into another leg of correction, which is bringing the entire market cap from a height around $814 Billion in Jan. 2018 to under $150 Billion by Nov. 21 2018 (Coinmarketcap)

Ethereum’s all-time-high was around $1400. It is now 1/10 of that, just under $140. Bitcoin’s all time-high was around $20,000. It is now around $4400, a little over 1/5 of the all-time high. So the hype and crash trajectory was more intense for Ethereum.

Both Bitcoin and Ethereum had rollercoaster rides, but Ethereum’s was wilder

Both Bitcoin and Ethereum had rollercoaster rides, but Ethereum’s was wilder

Ethereum’s extra volatility made sense for the following 3 reasons:

1) Ethereum was over-hyped up as the next evolution of cryptocurrencies.

2) Ethereum was used for Initial Coin Offerings (ICOs).

3) Ethereum development is stagnating while bitcoin has better implementation of its developments.

1) Overhype:

  • Bitcoin has a simple use case. It is essentially a currency solution. Its blockchain was designed to store transaction data and not much more. BTC’s blockchain is NON-TURING complete.

  • Ethereum uses its blockchain to transact smart contract and is TURING complete. Think of Bitcoin as a global calculator and databse, and Ethereum as a global super-computer.

  • With this much more ambitious vision, its no wonder Ethereum generated so much more excitement and imagination than Bitcoin did in 2017 and early 2018.

2) ICOs:

  • The ICO craze pushed up ETH price by essentially creating demand for ETH during its presale/crowdsale process.

  • There were hundreds, maybe even into thousands of ICOs around the world by 2018, which gave ETH price upward pressure.

  • This demand-side fuel combined with the vision-hype of Ethereum created a positive feed-back mechanism that drove ETH price higher persistently throughout 2017 and into early 2018.

  • However, the ICO craze waned eventually in 2018 and those ETHs demanded have become supply.

  • With projects needing to pay developers in fiat instead of ETH, there was now a period of surplus ETH supply.

  • Bitcoin on the other hand was spared from this ICO factor in its demand-supply cycle, which was basically fueled by speculation.

3) Stagnant Development:

  • According to highly-regarded developer and Dogecoin founder, Jackson Palmer, the implementation of segwit for Bitcoin in 2017 was key in the implementation of lightning network in 2018.

  • The implementation of the lightning network has been slow, but has now reached a capacity of more than 300 bitcoins in the network and over $1 mil.

  • This is a case where the tech is there, but there is no demand for it yet. Remember, this implementation is suppose to be a solution for the high fees and transaction delays that occurred in late 2017 during the mania. I guess we will test the viability of the lightning network during the next hype cycle.

  • The point is that the system is ready for increase in demand, but we can’t say the same for Ethereum.

  • Ethereum has been delaying its move to PoS because the scaling solutions have not been implemented. Actually, the solutions have been laid out after 4 years of research, but the implementation is nearly impossible.

  • Many have compared scaling Ethereum to replacing the motor of a high speed train while it is running.

  • Ethtereum’s vision promised A LOT! But in 2018 it has failed to convince the world that its vision is achievable any time soon.

  • Instead, the delays have instilled a lot of doubt that it will ever become this globally run super-computer.

  • What if Ethereum’s best utility was being an ICO platform?

Bitcoin Regaining Dominance over Shit Coins?

To be fair to Ethereum, most altcoins also had more intense pumps and dumps than bitcoin in 2017-2018. We can attribute Bitcoin’s relative stability to its age (since 2009) and size of network, which is head and shoulders above everyone else.

Because of this stability, Bitcoin’s dominance in the crypto space has been coming back. “Shitcoins” and these “shit-projects” are falling off by the wayside because people had looked at these unproven pipe dreams, with the same lens they use to look at bitcoin, which is more established.

That’s like looking at Lebron James (bitcoin), and expecting a bunch of College rookies to live up to the same hype. Like LBJ, BTC has put in the work and has been tested in real world challenges. It therefore remains king. I would not be surprised to see the 2019 as a continuation of Shit coin contraction and BTC dominance.

  • The chart above is from coinmarketcap.

  • It shows how the altcoin market gained dominance in 2017 but is losing its dominance in the second half of 2018.

  • I think some altcoins are here to stay so there might be a bottom above 0% to their market share and a ceiling to BTC’s market share below 100%.

  • Where will that balance be after we finish this round of cleansing in 2019?

  • Alt’s will still have above 20% market share. Maybe between 25% and 30%, meaning BTC should be around 70$-75%.

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