Ethereum could overturn Bitcoin’s market cap by 2027, industry experts say

• Ren Yu Kong is DeFi portfolio manager at digital asset hedge fund BKCoin Capital.
• He says ether has overtaken bitcoin because of the stake.
• Ether is up 39% in the last month before the network upgrade, according to Messari.

Ahead of Ethereum’s long-awaited upgrade, the smart-contract network’s cryptocurrency has continued to rally from its 2022 lows, jumping 39% in the past month, according to Messari.

Those gains have come despite contagion concerns about the fallout from major industry players such as crypto hedge fund Three Arrows Capital, and an apparent risk appetite from investors as the Federal Reserve’s efforts to fight inflation have pushed up lending costs.

The nascent space has regained some of its former footing, reaching a market cap of more than $1 trillion again after months of consecutive losses. And ethereum has outperformed rival bitcoin – the oldest cryptocurrency – which is up just 14% over the same period.

Some industry experts are predicting that ethereum will overtake bitcoin’s market cap – although their time frames differ. Ren Yu Kong, a DeFi portfolio manager for digital hedge fund BKCoin Capital, says this “flipping” could take place within the next five years.

“At the beginning of this year, if you asked an investment expert, the de-facto answer was definitely the dollar cost average of BTC,” the 25-year-old told Insider. “If you really wanted to take a little more risk, you could allocate a little bit to ETH. I think that’s definitely changed now.”

However, Ethereum is currently half the market capitalization of bitcoin. However, Bitcoin’s market cap is set at $457 billion, while the ecosystem’s total value is $1.2 trillion. Bitcoin, which trades about 1200% higher than Ether, has a market dominance of 40.27%. In comparison, ether has a market cap of $229 billion and is currently trading at $1,874.34.

The ‘strong narrative shift’ ahead of The Merge

Over the past six months, Kong says there has been a “strong narrative shift in favor of ETH” ahead of the upgrade, The Merge.

Tentatively scheduled for mid-September, the upgrade will transition Ethereum’s network from the energy-intensive proof of work (PoW) to the proof of stake (PoS) model. According to the Ethereum Foundation, the merger reduces the network’s energy use by 99% and will “set the stage for future scaling upgrades including slicing.”

Kong gave Insider three reasons to support his call that ethereum will eventually topple bitcoin.

The first is that if the network is able to cut down on energy consumption successfully, per Kong, this can also causing a flood of institutional capital to flow into the Ethereum ecosystem.

“It’s not hard to envision a world where institutional allocations to Ethereum increase massively relative to Bitcoin, especially as we transition to a proof of stake system,” he said, adding that the smart contract network will be “a lot more environmentally friendly.”

Harry Kalodner, CTO and co-founder of Ethereum scaling solution provider Offchain Labs, says the network migrating to PoS will “create an extra strong differentiator between the two chains.”

“In general, Ethereum has shown much more willingness to iterate and innovate on its core technology, while Bitcoin has ossified,” Kalodner told Insider in a statement.

Second, Ethereum’s network has “actual” utility over bitcoinssays Kong.

The smart contract network is the bedrock of DeFi, or decentralized finance, where developers can build and distribute decentralized apps. (However, performing functions on Ethereum’s network such as minting NFTs, or non-fungible tokens, can come with high gas fees.) Bitcoin, on the other hand, is often seen as a peer-to-peer transaction system and a store of value.

“Over the last few months, investment experts are increasingly agreeing that ETH seems to be the safer play, because at the end of the day it has utility and Bitcoin doesn’t. In the current market conditions, if anything has utility and actually value, it’s a much better proposition,” Kong said.

Thirdly, he notes that ethereum also has the upper hand over bitcoin due to its returns. The network’s robust use cases also include staking, or a way to earn passive income by validating transactions on a blockchain. With Ethereum-compatible staking solutions such as Rocket Pool and Lido, investors of a token can generate returns without having to sell.

“Ethereum actually has value in terms of return on investment, and as scalability improves, it can cement itself as the base layer that secures a large amount of the world’s digital transactions,” Kong said.

A bold scenario where the flip happens in 12 months

Some executives are even more bullish on the upgrade, predicting that ether could overtake bitcoin in market value within the next year. In a recent note to clients, Sean Farrell – vice president of digital assets at Fundstrat – said the firm is on “volatile” watch as bitcoin continues to underperform.

In derivatives markets, volumes of ether options surpassed their bitcoin counterpart for the first time in history, according to the August 12 note, when comparing the 30-day moving average. Farrell says this signals a “comparatively greater level of attention to the ETH market among traders.”

“While we still believe there are inherent technical risks built into the merger that we will continue to assess before the big event, we believe that from both a narrative and fundamental perspective, ethereum now has a good chance of surpassing bitcoin in market capitalization during of the next 12 months,” he added.