Goldman Sachs Analysts Say Ethereum Has “High Chance” of Beating Bitcoin as Store of Value – Is the “Flippening” Debate About to Make a Comeback?

Key highlights:

  • According to a report from Goldman Sachs, Ethereum has a strong chance of surpassing Bitcoin
  • The analysts say that Ethereum is better suited to adapt to new technologies
  • The closest we ever came to the “flippening” between Ethereum and Bitcoin was in 2017

Goldman Sachs analysts say Ethereum has “high chance” of overtaking Bitcoin as a store of value

A report from major investment bank Goldman Sachs published on May 21 says that Ethereum has a “high chance” of surpassing Bitcoin as the leading digital store of value. The report highlights Ethereum’s flexibility as an advantage compared to Bitcoin – the network can be used for use-cases like decentralized finance and NFTs, and it also serves as a decentralized platform for storing valuable information.   

The Goldman Sachs report also touched on the issue of scarcity, which is one of the main arguments  for why Bitcoin will keep its lead over Ethereum and other challengers. In comparison to Bitcoin, which has a hard cap on its supply set at 21 million BTC, there is no limit on how many ETH can exist. However, the Goldman Sachs analysts argue that a supply cap is not a prerequisite for an asset to serve as a store of value, pointing to gold as an example. 

“More important than having a limited supply to preserve value is having a low risk of dramatic and unpredictable increases in new supply. And ether, for which the total supply is not capped, but annual supply growth is, meets this criterion.”

Another area that the analysts touched on is Bitcoin’s first-mover advantage. The analysts used examples from the internet industry to show that the first-mover advantage can evaporate in industries that are growing quickly and producing new technological advancements. According to the report, Ethereum is better positioned to adopt new technologies quickly because of its governance structure.

Ethereum’s transition to Proof-of-Stake is highlighted as an example of its adaptability, and it could also make it more attractive than Bitcoin to investors who emphasize ESG (environmental, social and corporate governance). 

As for the biggest risks facing Ethereum, the analysts note that delays in Ethereum’s PoS transition could lead developers to choose alternative blockchain platforms instead. The report says that the utility of Bitcoin could also be improved through both the Lightning Network and protocol-level changes that would help it keep up with technological advancements in blockchain. 

The “flippening” debate is nothing new

Speculation about Bitcoin losing its spot as the largest cryptocurrency by market cap is not new. The cryptocurrency community even came up with the term “flippening” to describe such a scenario. The flippening debate was at its peak in 2017, when Ethereum came dangerously close to overtaking Bitcoin in market capitalization. 

In June of 2017, Ethereum’s market cap grew to 83% of Bitcoin’s market cap, and that was the closest the two crypto assets have ever been in terms of market capitalization. At that time, growth in the ETH market was fueled by the emergence of initial coin offerings (ICOs), which gave crypto investors a way of making highly speculative bets that wasn’t available before. 

ETH’s market cap as a percentage of BTC’s market cap. At 100%, the two cryptocurrencies would have the same market cap. Image source: blockchaincenter.net

The “flippening” narrative started gaining some traction again this year, thanks to ETH’s positive trend against BTC. The ETH/BTC pair started the year at around 0.0239 and peaked at 0.0820 on May 15. ETH has since seen a small correction against BTC, and the pair is currently at around 0.0693.

ETH/BTC pair in 2021 so far. Image source: TradingView

Now, let’s quickly take a look at some on-chain metrics. As we can see on The Block’s data dashboard, Ethereum is generating a lot more in transaction fees than Bitcoin.

Transaction fees paid to miner on the Bitcoin (blue) and Ethereum (red) networks (7-day moving average). Image source: The Block data dashboard

Ethereum’s transaction count has also been trending positively since February last year, while Bitcoin’s transaction count has been in a negative trend since 2019. Ethereum has recently even surpassed Bitcoin in terms of adjusted on-chain volume, although there has been a back-and-forth between the two cryptocurrencies in regards to this metric.

Bitcoin dominance has been trending negatively in 2021, falling all the way to 37.4% earlier in May. At the time of writing, Bitcoin represents about 43% of the total cryptocurrency market cap. 

Bitcoin dominance (year-to-date). Image source: CoinCodex 

It’s worth keeping in mind that even though Bitcoin has been labeled obsolete countless times, BTC has been able to shrug off all challengers so far and is still comfortably sitting in the top market capitalization spot. The “flippening” doesn’t seem like a realistic scenario at the moment, as ETH’s market cap is only about 43% of BTC’s. 

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