- Bitcoin often directs tokens’ price action as traders regard it as a reserve cryptocurrency in the market.
- Ethereum’s deflationary functionality will make ETH tokens more scarce after implementing the EIP-1559 update.
- The move to Proof-of-Stake means Ethereum’s tokenomics will not bear similarities to the current consensus model.
Retail and institutional investors recognize Bitcoin’s coin supremacy reign as it’s become the preferred token denominator. While Bitcoin is lauded as digital gold, Ethereum is gaining a reputation for being utilized on a larger scale, aside from speculation. Bitcoin’s market price shifts are directly influencing altcoins, although much of the trading now occurs through stablecoin denominators.
Ethereum Is Breaking The Chains
The Bitcoin-Ethereum correlation is not a performance indicator but a staple of the network’s importance. Diversifying investment portfolios is dull as price discrepancies rarely occur between Bitcoin and other altcoins, including Ethereum.
Investor and founder of Three Arrows Capital, Su Zhu, researched and reported on Ethereum’s correlation metric. Specifically, he highlighted Bitcoin-Ethereum correlations are being eliminated, claiming alt-season will slowly dissipate as the market matures. Furthermore, detachment from the Bitcoin standard could occur only when Ethereum adds a similar scarce value to the network economy.
Su Zhu highlighted that Ethereum’s high correlation to Bitcoin occurs when Etheruem’s team fails to meet the user’s demands. Specifically, a failure to bring Ethereum 2.0 closer to a reality in 2020 made Ethereum more responsive to Bitcoin’s actions. As observed in 2021, anticipation for ETH 2.0 and the ETH-based DeFi sector’s growth decreased Ethereum’s dependency, reaching a new high of $4,362, as reported by CoinMarketCap.
On The Flipside
- Crypto pairings have primarily been in rapport to Bitcoin rather than stablecoins
- Ethereum failed to maintain its bullish trajectory ahead of upcoming network updates, which indicates it is not suitable to disassociate from BTC.
- Even if Ethereum migrates to Ethereum 2.0, PoS and PoW will work in tandem until the migration is completed.
Will Proof-Of-Stake Change Things For Ethereum?
Ethereum will alter its consensus mechanism and shift from Proof-of-Work to Proof-of-Stake. In addition, Ethereum will implement a series of upgrades during the transient process, including the EIP-1559, which primarily works to diminish the total supply of ETH by burning parts of the mining fees.
As highlighted by Vitalik Buterin, the new update and the progression to Proof-of-Stake will make ETH into a “deflationary monetary system.” Additionally, Coinmonks reported that the Ethereum protocol would burn 1 million tokens per year from the total supply. Thus, Ethereum 2.0 could provide additional strong points, as the native token can trend into a store of value, similar to Bitcoin.
Decoupling requires complete interdependence from Bitcoin and a paradigm shift in users’ perceptions. For example, Ethereum ICO tokens were highly dependent on the activity of ETH in the early stages. Now, while Bitcoin still influences them, they are less affected by Ethereum.
Furthermore, Ethereum 2.0 brings another dynamic to the tokenomics of the network. Specifically, users will be incentivized to hold and not spend tokens to become network validators. To date, 200K validators are staking ETH tokens with a value of $14 billion on the network. Thus, diffusion from the current standard could occur, but the main catalyst is still an unknown variable.
Within the cryptocurrency community, the term “fillpening” referred to the story of when Ethereum will become the most “valuable cryptocurrency” by overtaking Bitcoin. Traders often view both Ethereum and Bitcoin as “liquidity backstops” as it serves as a shield for allocating other parts of the portfolio. While Bitcoin’s market domination is still above any other currency, including Ethereum, the token cannot change its perception towards the community as it does not associate itself with ecosystems guardianship.