In reports with predictions for 2023, such as documents published by MB Research and Messari, Ethereum (ETH) is naturally among the narratives considered strong. Not just Ethereum, but its entire ecosystem of layer 2 solutions are also in the range of points to watch.
The strengthening of Ethereum has some enthusiasts weighing whether the protocol could be responsible for sparking the next rally in the cryptocurrency. In general, the crypto market responds to the movements of Bitcoin (BTC). However, what we now imagine is whether the second largest cryptocurrency in the market will be responsible for the next rally.
“Flipping” is inevitable
The moment when Ethereum will overtake Bitcoin as the ‘leadership’ of the crypto market is known as ‘flippening’. For Ronnie Zoster, an analyst at MB Research, flopping is inevitable. However, he believes that a decoupling of ETH from BTC will not happen in the next bull cycle.
“There is a high probability that this will not happen, because the Bitcoin halving is scheduled to happen in 2024, which will divide the rewards in two. This will significantly reduce the inflation rate for BTC, which will remain at 0.8% annually, while ETH is 0.1%,” he added. says Szuster.
The analyst adds that the probability of volatility from here two peaks is much higher. The number one reason for optimism regarding Ethereum is “consolidation.” The event, which took place in September 2022, concluded the network’s transition from a PoW consensus model to a Proof of Stake. “Withdrawing the rewards paid out to miners has greatly improved the dynamics of ETH.”
Moreover, Szuster points to the Cancun upgrade, which is expected to take place in 2023, as another point of consolidation for Ethereum that will favor volatility. He claims Cancun will implement improvements in network scalability, lower fees and get more projects to join the ecosystem.
Felipe Escudero, founder of the BitNada channel and BitNotícias portal, also believes that Ethereum will become the most relevant blockchain in the coming years. It highlights Tier 2 solutions, particularly those with no-knowledge proofs like zk-rollups, fee reductions through predictable upgrades, and the DeFi ecosystem.
“Virtually everything that is being built today in DeFi, Web3, and other applications that use smart contracts, is done on the Ethereum library (EVM). In this way, it is very difficult to see any other blockchain that stands out more than Ethereum or Layer 2 solutions in the coming years.” As Escudero says.
Bitcoin will remain relevant
While there are Ethereum extremists who advocate Bitcoin’s descent into untouchability, Flippening theorists don’t necessarily believe in this. The thesis defended is that ETH will become the most used cryptocurrency due to its utility. For these enthusiasts, this does not mean that bitcoin has no value.
An example of this is João Zecchin, co-founder and director of Fuse Capital, who is also part of the list of enthusiasts who believe that Ethereum will overtake Bitcoin in influence. He points out that BTC will continue to play an important role in the market, just as gold takes over the role of a store of value in the traditional market.
“Here at Fuse, we believe Web3 application development is based on a network like Ethereum,” Zecchin continues.
The death of the “Ethereum killers”
Zecchin assesses that the “consolidation” has played an important role in strengthening Ethereum. Unlike the Proof of Work system, which makes miners sell crypto assets to fund their operations, the Proof of Stake system allows them to hold their cryptocurrency.
More important, however, has been the resilience of Ethereum in projects created with the intention of being more effective at what the network proposes, the so-called ‘Ethereum Killers’.
“You have other networks competing, but none of them are as decentralized and resilient as Ethereum. In the past year, more Ethereum competitor networks have appeared, like Solana, Avalanche, etc. But that narrative is dead, and the projects are coming back to Ethereum.”
The native network’s prevalence of the second largest cryptocurrency in market cap compared to its competitors means that more applications are being developed on top of it.
Another point that could make ETH overtake BTC for the “leading” position in the market is liquidity, says João Marco Cunha, portfolio manager at Hashdex. The cryptocurrency market usually follows the movements of Bitcoin because, as it is the most liquid asset, the flow of investments entering and leaving the market passes through it.
“It is possible that Ethereum, as the second largest asset in the category, will attract the attention of investors and become the vector of a new cycle of appreciation of crypto assets,” adds Cunha.
In addition, the Hashdex manager also believes that the Shanghai update, scheduled for 2023, will help increase interest in Ethereum. The upgrade is issuing profitable ETH, creating an additional revenue stream that does not affect liquidity. Cunha adds that this would increase demand for ETH and reignite demand for the crypto asset.
“This, however, is only likely if investors are willing, at the very least, to put themselves in risky assets, which in turn depend on the macroeconomic conditions of advanced economies.”
There remains a long way to go
Analyst Marcel Bechmann does not completely rule out Flippening. He points out, however, that some fundamental Ethereum issues need to be addressed. “For Ethereum to take off, it may take some events to solve the problems of large centralization like data provider Infura and staking service Lido, as well as high transaction verification rates.”
Pechman also mentions hashing, which divides the Ethereum network into 64 smaller parts, with the aim of improving scalability. “Even the developers don’t know how to say what’s missing in the final version,” he adds.
Finally, the analyst points out that a highly relevant event is needed to favor Ethereum over Bitcoin. Beckmann concludes that such an event should not occur within the next 12 months, “given the history of delays in the delivery of this project.”
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