Ether is snapping at Bitcoin’s heels in the cryptocurrency race

For years, ether could hardly dream of challenging its big brother bitcoin. Now the ambitions can become more realistic. The second-largest cryptocurrency is taking market share from bitcoin ahead of a major “Merge” software upgrade that could greatly reduce the energy use of the Ethereum blockchain, should developers pull it off in the coming days.

Bitcoin’s dominance, or its share of the crypto market’s market capitalization, has fallen to 39.1% from this year’s peak of 47.5% in mid-June, according to data platform CoinMarketCap. Ether, on the other hand, has climbed to 20.5% from 16%.

The upstart is still a long way from overtaking bitcoin as the No. 1 cryptocurrency, a reversal known to aficionados as “the flippening.” It’s made up the ground, though; in January 2021, bitcoin ruled with 72%, while ether occupied a slim 10%.

In terms of price, one ether is now worth 0.082 bitcoin, near December 2021 highs and well above the 2022 low of 0.049 in June.

“People now see Ethereum as essentially a safe asset because they’ve seen the success of the network, they think it’s not going anywhere,” said Joseph Edwards, head of financial strategy at fund management firm Solrise Finance.

“There is a permanence in how Ethereum is perceived in the crypto ecosystem.”

CAPRISIOUS CRYPTO

The merger, which is expected to take place on Thursday after several delays, could lead to wider use of the blockchain, potentially increasing the price of ether – although nothing is certain in a fickle crypto market.

Ethereum forms the backbone of much of the “Web3” vision of a crypto-centric internet, powering applications involving crypto offshoots such as decentralized finance and non-fungible tokens — though this much-hyped dream remains unrealized.

Bitcoin and ether have both nearly halved this year due to concerns about large interest rate hikes from central banks. Nevertheless, investors seem to like the look of the merger, with Ether up over 65% since the end of June. Bitcoin has barely budged in the same period.

“We’re going to see (ether’s) attractiveness to some investors who are concerned about energy consumption,” said Doug Schwenk, CEO of Digital Asset Research, although he cautioned that ether was still some way behind bitcoin.

THE KING IS STRONG

Bitcoin’s waning dominance in crypto’s current bear market is a departure from previous market cycles when investors sold smaller tokens — “altcoins” — in favor of the more liquid and reliable bitcoin.

However, dethroning the king is no easy feat.

Bitcoin remains by far the most well-known cryptocurrency. Ordinary investors who have dipped their toes into the crypto market since 2020 have tended to turn first to bitcoin, as the most liquid and most traded token.

Its market cap of $427 billion is still more than double Ether’s $210 billion, and market participants are convinced that the original digital coin remains the gold standard in crypto due to its limited supply.

Some market players say bitcoin’s grip on the cryptocurrency remains strong, even if it has to accept other challengers. For example, Hugo Xavier, CEO of K2 Trading Partners, said its dominance could improve to the 50%-60% range if the crypto market turns bullish, but it is unlikely to reach 70% again.