CRYPTOCURRENCY | BLOCKCHAIN
Ethereum has announced that the Mainnet and Beacon Chain will Merge on 15 or 16 September. This will transform it from Proof-of-Work (PoW) to Proof-of-Stake (PoS). Is that transition enough to flip Bitcoin (BTC)?
Essential Information About Ethereum’s Upcoming Merge
When the Ethereum (ETH) merge occurs in September, it will mark the end of its PoW system and begin its status as a PoS coin.
Ethereum 2.0 will not create a new coin.
This Merge will change the financial policies of the blockchain, allowing ETH to become more sustainable and decreasing the total supply of ETH.
The Flippening: Will It Happen?? Everything You NEED To Know!!
The Merge will supposedly decrease ETH’s total supply. A decreased supply should help lift the price of ETH. This could assist its rise to #1.
However, BTC will always be seen as “digital gold” within the digital universe, while Ethereum is known as “digital oil.”
A rapid increase in the ETH price, a decrease in BTC’s price, or a combination of these two could lead to the Flippening.
The ETH merge will not reduce gas fees for transactions (at least not immediately), a primary sticking point that could prevent ETH from growing. By contrast, Solana (SOL) and Cardano (ADA) have cheaper fees due primarily to their PoS consensus mechanism. Could one of them overtake ETH?
Many believe the fees on the Ethereum platform will decline gradually.
According to a Tweet by Vivek Raman:
“Ethereum’s Merge will not reduce network fees as many would expect. The high gas fees on Ethereum are due to increased demand for block space rather than a function of the ‘consensus mechanism’.”
Instead, the ETH blockchain plans to scale its users’ activity and secure its Mainnet through a decentralized layer. This method could allow for cheaper transactions within the network (eventually).
Flipping Bitcoin with Any Altcoin Will Be Challenging
For those unaware, market cap for cryptocurrencies works the same way as that of the stock market.
Replace the word “share” with “coin or token” so that “total shares outstanding multiplied by price per share” becomes total altcoins/tokens outstanding multiplied by the price per altcoin/token equals the assets’ market cap.
Market cap is one of the vital indicators of an altcoin’s value. Many newcomers (including me) to the cryptocurrency market considered only an altcoin’s price to determine its value without considering how many are circulating and how many will be produced.
However, scarcity is only one part of the Law of Supply and Demand.
“The law of supply and demand is the economic relationship between the sellers and the buyers of various commodities. The supply and demand theory states that the price of a product depends on its availability and buyers’ demand.” — Indeed.
“The live Bitcoin price today is $21,183.24 USD with a 24-hour trading volume of $26,969,206,664 USD. We update our BTC to USD price in real-time. Bitcoin is up 0.54% in the last 24 hours. The current CoinMarketCap ranking is #1, with a live market cap of $405,177,341,535 USD. It has a circulating supply of 19,127,256 BTC coins and a max. supply of 21,000,000 BTC coins. — Coin Market Cap.
ETH Data Current as of 20 AUG ‘22
“The live Ethereum price today is $1,578.20 USD with a 24-hour trading volume of $17,874,601,724 USD. We update our ETH to USD price in real-time. Ethereum is down 2.90% in the last 24 hours. The current CoinMarketCap ranking is #2, with a live market cap of $192,613,364,071 USD. It has a circulating supply of 122,045,916 ETH coins and the max. supply is not available.” — Coin Market Cap.
Between ETH and BTC, the value or market cap gap is more than $200 billion. BTC’s market cap on 19 AUG is $408,567,909,013, while ETH’s is $206,487,299,810.
That’s more than double. However, many are looking at it like the “glass is half-full,” or ETH is almost halfway to the Flippening.
ETH is almost triple its next closest competitor a “stablecoin,” Tether (USDT) valued at $67,554,732,043.
“…stablecoins are cryptocurrencies that are designed to offer stability within a cryptocurrency system. They’re often pegged (i.e., have a fixed exchange rate) to a fiat currency, such as the US dollar.” — Business Insider.
If you take out stablecoins, ETH is well ahead of the XRP token, at #3, produced by Ripple labs, which currently has a market cap of $16,623,331,697.
In fact, BTC owns more than 55% of the total value within the cryptocurrency industry. These valuations were genuine at the time of my research, though market valuations in the highly volatile cryptocurrency market change rapidly.
Conversely, ETH owns just a little more than 12% of the value. This gap may be a hard one to close for ETH.
Plus, other factors may make it challenging for ETH to top BTC in the near future. Let’s explore those so you can form an opinion about the “flippening.”
“The flippening is a term used to describe a potential “flip” in the largest cryptocurrency. Specifically, it refers to the possibility of the second-largest cryptocurrency, Ethereum (CRYPTO: ETH), overtaking Bitcoin.” — The Motley Fool.
The liquidity of any item in the market refers to the ability to convert it to cash. Having a huge amount of liquidity has thus far allowed BTC to “hold the perch” at #1.
In response to, “Is Bitcoin Considered a Liquid Asset?” Crypto Vantage wrote:
“A liquid asset is defined as an asset that can be turned into cash quickly at a rate that isn’t far off the price quoted on the open market. The nature of Bitcoin makes it so it can be turned into cash very quickly, but those transferring extremely large amounts of Bitcoin may experience some slippage.” — Crypto Vantage.
Some “whales” believe ETH has the presence in the crypto universe but not the asset liquidity of BTC, though some Ether watchers and owners would say “…we’re halfway there.”
Most crypto enthusiasts understand that the BTC halving creates a bull run.
Well, imagine that times three. The Merge will cut emissions by 90 percent, daily block compensation will diminish from 12800 to 1280 ETH, and inflation will drop from 4.3% to 0.43%, which could be seen as a 3X halving.
Circulating Supply, Total Supply, & Maximum Supply
Many investors do not understand the difference between circulating supply, total supply, and maximum supply. It can be complicated. Of course, circulating supply refers to the number of coins in circulation.
However, total supply doesn’t necessarily refer to the total supply that will ever be produced; that is maximum supply.
“The total supply of a cryptocurrency is the total number of coins currently in existence. This includes coins already in circulation among the public and other coins not on the market, such as newly mined coins and coins that are reserved or “locked up” by the developers.” — Crypto Definitions Dictionary.
“The maximum supply of a cryptocurrency refers to the maximum number of coins or tokens that will be ever created. This means that once the maximum supply is reached, there won’t be any new coins mined, minted, or produced in any other way. Normally, the maximum supply is capped by the limits defined by the underlying protocol of each digital asset.” — O3 Schools.
So, How Will Those Numbers Affect the Flippening?
As opposed to government-produced and regulated fiat currencies, the maximum supply of BTC is set at 21,000,000, which it is predicted to reach by 2040.
Yet the price can move quickly due to its small number compared to ETH, which has an announced total/circulating supply of 122,027,066 coins. The maximum supply is not currently known.
Although the number of coins in circulation and price will drive market cap, inflation can stifle growth. Although the Merge will help fight inflation and quell circulating supply, ETH has nearly 100 million coins in circulation than BTC ever will.
Regardless of the number of coins in circulation, the demand for either will drive the price. BTC has always led the way, but it has no real project outside of its decentralized nature, limited anonymity, and stored value.
ETH, on the other hand, possesses those qualities; plus, it was created and improved to facilitate many online transactions, such as execute Smart contracts, power Decentralized Applications (DApps) and Decentralized Autonomous Organizations (DAO) that support artists and entrepreneurs to create Non-Fungible Tokens (NFT), and Play-to-Earn (P2E) games.
Those functions often lead to ETH being referred to as “digital oil” because it “greases the skids” for so many operations across the crypto universe.
Final Thoughts About the Flippening
While ETH is set to complete the Merge to PoS in September, many believe it will flip BTC and become number one.
However, we must wait and see how the ETH blockchain will function once the Merge is complete.
Suppose, as predicted, the gas fees remain high. What is the advantage beyond the apparent but not visible benefit to the environment? If developers and creators must pay the same high fees, what will stop them from using another platform that performs the same function for less?
Plus, even an ETH flip doesn’t guarantee that ETH will become an excellent investment value or that BTC will lose its value. We must also consider that ETH could be the one dethroned at #2 by SOL or Cardano, particularly if gas fees stay the same.
You must do your own research (DYOR), decide for yourself which is the better value if either, and never use money to invest that you cannot afford to lose.
DISCLAIMER: This article is for entertainment and informational purposes only. It should not be considered financial or legal advice. Not all information will be accurate. I am not a financial adviser, and you should consider anything I write as informational and friendly banter to show you what is possible if you invest your money in these vehicles. However, there are no guarantees. Consult a financial professional before making any significant financial decisions.
Note: This post contains affiliate links. Read my disclosure statement for additional information.
Stephen Dalton is a retired US Army First Sergeant with a degree in journalism from the University of Maryland and a Certified US English Chicago Manual of Style Editor. Also, a Top Writer in Nutrition, Investing, Travel, Fiction, Transportation, VR, NFL, Design, Creativity, and Short Story.
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