Forex: Why blockchain Ethereum will flip Bitcoin

For instance, the limited supply of Bitcoin (BTC) drives up its value.

And blockchain Ethereum’s smart contract capability can be a source of new innovation that could increase the value of Ether, its own native cryptocurrency, say experts Forex Brokers.

Ethereum's ‘merge’, a technology upgrade that is expected to improve the efficiency of the blockchain, has recently moved the crypto market.

While Bitcoin is currently the most valuable cryptocurrency by market capitalisation, Ethereum (ETH) is expected to overtake it in the not-too-distant future.

Factors that drive the flippening

In spite of Bitcoin aficionados insisting the ‘flippening’ – or overtaking of Bitcoin – will never happen, the options market suggests otherwise.

Ether open options ‘flipped’ Bitcoin open options on Deribit for the first time due to the ‘bullish momentum’ surrounding Ethereum's merger, as was also seen by several other Forex brokers in the UK that support cryptocurrency.

‘Open interest’ refers to the number of open derivative contracts, or options, that have not yet been closed or expired.

All of the market's gains are being pushed up by the Ethereum POW/PoS merge narrative. It's all speculation at this point that ETH 2.0 will be a better product, and with that comes a high risk, high reward play.

Limitations to the Bitcoin model

Currency serves as a medium of exchange, a unit of account, and a store of value. Since cryptocurrency is similar to fiat currency but does not have the backing of governments, there is clearly some correlation between being a medium of exchange and a store of value.

This means that a cryptocurrency's value is solely determined by the perceived value that others place on it.

The scarcity of Bitcoin, like that of antiques and works of art, provides some of its value, which can also serve as an inflation hedge.

However, in comparison to fiat processors like Visa, which can process over 60,000 transactions per second during peak times, Bitcoin's blockchain can only handle about seven transactions per second at present.

The current state of technology means that Bitcoin is not fast enough to be a true medium of exchange at this point in time.

When Bitcoin's per-coin price rises significantly, divisibility could become a major issue. Ethereum, which has a circulating supply six times greater than Bitcoin and goes out to ten more decimal places, has a divisibility problem of its own.

In light of the fact that BTC's programming script is not Turing-complete and does not support smart contracts, the currency's primary appeal to investors is its scarcity.

The innovation factor

The Turing-completeness of Ethereum, on the other hand, enables developers to innovate and create new products and services that consumers value.

Furthermore, these Ethereum-based innovations are likely to use some of Ether as a medium of exchange, increasing the value and demand for the cryptocurrency.

Ethereum's relative market value can be driven in part by the frequency and expected market value of new innovations arriving on the Ethereum platform, as evidenced by history.

Ethereum's market value rises in direct proportion to the size of a breakthrough innovation. When the value of NFTs skyrocketed in 2021, Ethereum's relative value increased from 18% at the start of the year to over doubling by the year's end to 44%.

Forecasting the flippening

Many analysts predict that Ethereum will overtake Bitcoin in less than five years under an optimistic scenario in which new innovations arrive on average once a year and have a 20% impact on the price of Ethereum says data trading firm – Forexrecommend.com.

As an alternative, if major innovations occur only every three years and have a 5 percent impact on Ethereum's value, it will take about nine years for Ethereum's market value to catch up to that of Bitcoin's.