Bitcoin’s price rally has stalled after a blistering start to the year with ethereum, the second-largest cryptocurrency after bitcoin, also falling sharply from its peak.
The bitcoin price has lost a third of its value since soaring to almost $65,000 per bitcoin in April while the ethereum price has crashed by almost 50% from its mid-May high—though ethereum’s rally has dwarfed the bitcoin price surge over the last 12 months.
As Wall Street giants and retail investors flood the crypto market, traders are trying to predict whether ethereum will continue to outperform bitcoin—with $100 million digital asset investment manager Two Prime’s chief investment officer forecasting ethereum will eventually “flip” bitcoin.
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“In the long, long, multi-year timeline, yes, ethereum will flip bitcoin,” says Two Prime’s Nathan Cox. “It’s just now starting to be understood by the second-tier adopters. Ethereum’s utility alone will outstrip anything else.”
Bitcoin, at a price per coin of $40,000, has a market capitalization of around $750 billion, while ethereum, at $2,500 per ether token, is worth a combined near-$300 billion. However, ethereum has closed the gap on bitcoin over the last year, surging 1,000% compared to bitcoin’s 300% rally.
The ethereum price has broken out this year in part due to the soaring popularity of decentralized finance (DeFi)—using cryptocurrency technology to recreate traditional bank products such as loans and insurance and built on top of ethereum’s blockchain. Meanwhile, the NFT (non-fungible token) craze that has seen all manner of memes, digital artwork, tweets and YouTube videos sold via ethereum’s blockchain has further boosted demand for ether.
“Bitcoin is digital gold but ethereum is digital oil,” says Cox. The Caymen Islands-based Two Prime, which offers investors exposure to bitcoin and ethereum via its funds and has a target of $250 million assets under management by the end of the year, has launched a liquid yield fund to diversify from fixed income.
“Our outlook is bullish overall,” says Cox, pointing to El Salvador’s plans for widespread bitcoin adoption throughout the country as “more significant” than originally thought. “The majority of the pain of this pullback has probably been experienced already.”
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Meanwhile, others in the cryptocurrency industry remain upbeat despite significant pullbacks for bitcoin and ethereum.
“Sentiment towards the king of crypto continues to shift into positive territory,” Paolo Ardoino, the chief technology officer at British Virgin Islands-based bitcoin and cryptocurrency exchange Bitfinex, said in emailed comments, warning that the likes of Tesla billionaire Elon Musk and high-profile investors such as renowned hedge fund manager Paul Tudor Jones are still wielding outsized influence over crypto prices.
This week, Tudor Jones gave the bitcoin price a boost when he said he was targeting a 5% bitcoin allocation, up from just 2% previously.
“While the past few days have shown once again that celebrities and the movers and shakers in the space can impact the price, this will not last forever,” said Ardoino. “The momentum that has won bitcoin increasing recognition as an asset class continues to gather pace.”