Daily Briefing: Dethroning Bitcoin

Bitcoin has led the crypto world since the beginning, but a sluggish 2022 and momentum in the Ethereum ecosystem could call its dominance into question.

Coming at the King

For as long as crypto has been trading, Bitcoin has led the market. Whether in the depths of a bear market or at peak euphoria, everything follows the King. Traders are well aware of Bitcoin’s influence over the market; the top performers factor it into their strategies.

Time and time again, Bitcoin has led rallies, gaining against other cryptocurrencies before cooling off as liquidity flows into more speculative tokens. But while prior trends can be useful when analyzing the market, they become irrelevant when extraneous factors come into play.

Now entering its 11th month of sluggish trading, Bitcoin is caught in one of the roughest patches in its history. Where crypto evangelists spoke of how Bitcoin would find its way into the world’s biggest corporate treasuries in 2021, now they’re worrying about Mt. Gox selloffs and climate concerns surrounding Proof-of-Work. Ethereum’s upcoming Merge to Proof-of-Stake hasn’t helped, at once angering the top crypto’s most ardent believers and calling Bitcoin’s “digital gold” thesis into question.

Of course, these issues aren’t the biggest thing weighing on Bitcoin’s price—crypto has traded in tandem with stocks for some time and currently sits at the whim of larger macroeconomic problems. However, crypto is driven by narratives. It doesn’t matter if an event seems inconsequential—if enough people believe it is bad, then it is bad.

But narratives can work both ways. Although Bitcoin hasn’t got much going for it right now, the Ethereum Merge is providing a significant tailwind for the number two cryptocurrency. An unprecedented dichotomy is forming between the two largest cryptocurrencies, where one is at its strongest while the other is at its weakest. That’s why Ethereum gained against Bitcoin in this summer’s relief rally, something historical data couldn’t have predicted.

Ethereum may be taking the spotlight in the lead-up to the Merge, but it’s unclear whether this trend will continue after the event. Some assert the Merge will be a “sell the news” event, allowing Bitcoin to claw back its dominance. Others maintain that the Merge’s 90% reduction in ETH issuance will put the second-largest cryptocurrency on a fast track to overtaking Bitcoin. Regardless of what happens, I think it’s important to note that Bitcoin’s hegemony is being seriously challenged for the first time in its history. If it can happen once, it will likely happen again.

Disclosure: At the time of writing, the author of this piece owned ETH, BTC, and several other cryptocurrencies. The information contained in this piece is for educational purposes only and should not be considered investment advice.