Ethereum – Is It Worth Looking Beyond Bitcoin?
April 22, 2024
Like the price jump in Bitcoin, Ethereum’s price has skyrocketed year to date, up 57%. Often bracketed as just another cryptocurrency similar to Bitcoin, Ethereum’s value proposition and use case are significantly different.
Unlike Bitcoin, whose primary value proposition is a store of value and an inflation-hedge asset, akin to gold – Ethereum is a decentralized smart contract platform. It allows Ethereum holders to build applications on the ETH blockchain and use Ethereum as a form of digital currency within the Ethereum ecosystem. Ethereum switched to a proof-of-stake (PoS) concept as opposed to the proof-of-work (PoW) concept popularized by Bitcoin in 2022. PoS is a less computationally intense and more environmentally friendly mechanism for processing and creating new blocks on the Ethereum blockchain. The key difference between PoS and PoW is the method by which new blocks are added to the blockchain. With PoW, bitcoin miners must expend significant computational power to solve complex equations to successfully add a block to the blockchain. Whilst in PoS, owners of Ethereum use Ethereum as collateral to validate transactions on the blockchain.
Though Ethereum does not have a finite supply like Bitcoin, it does manage inflation by removing tokens from circulation in a process called burning. The burning process acts as a deflationary mechanism to control the supply of Ethereum in the market. As of April 2024, there is an estimated 120m Ethereum in circulation, with a market cap of $430 billion. Through year-end 2023, approximately 1.2m ETH has been burned, resulting in a Ethereum supply decline of nearly 300 thousand tokens.
Despite these differences, Ethereum’s price has moved up alongside Bitcoin in the latest wave and may take the baton going forward as its own ETFs come up for approval. We believe an allocation to Ethereum aids in the diversification of overall crypto asset allocations and gives access to unique features within the crypto universe.
DISCLOSURES
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This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
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