Investing in Ethereum carries greater risk than Bitcoin and other altcoins: Morgan Stanley

• Ethereum could soon see the end of its dominance due to heightened competition from other altcoins according to a Morgan Stanley report.
• Ether also faces bigger issues than Bitcoin in terms of competition, scalability, complexity, and volatility. 

Morgan Stanley Wealth Management is sounding the alarm on investments in lead altcoin Ethereum (ETH) in a recent report titled “Cryptocurrency 201: What Is Ethereum?”. The bank takes note of Ethereum’s dominance in the decentralized finance (DeFi) and non-fungible token (NFT) spaces. However, it also says that inherent weaknesses in the network risk it being outpaced by worthy competitors. Ethereum may lose its position as lead smart contract network to faster and cheaper alternatives, Morgan Stanley warns. 

Over time, blockchains such as Cardano, Solana, and Polkadot have risen to the point of being branded “Ethereum killers.” They feature far more attractive features in terms of scalability and network gas fees. The upcoming launch of Ethereum’s consensus layer and sharding capability is expected to resolve its issues to a large extent.

JPMorgan is another major bank that raised concerns about Ethereum’s scalability. In its opinion, the network may not scale fast enough to ward off competition. Ethereum developers, however, shrugged off the comment, calling it a “lazy critique.”

Morgan Stanley: Bitcoin remains superior to Ethereum

And in comparing the coin to Bitcoin (BTC), Morgan Stanley says Ethereum faces more competitive threats, scalability issues, and complexity challenges than the former. Ether’s competition in the smart contract market supersedes Bitcoin’s competition in the store-of-value market, the banknotes. 

Moreover, Morgan Stanley says Ethereum is less decentralized than the apex coin since the top 100 addresses hold 39 percent of ETH compared to 14 percent for BTC.

Even more, the bank opines that Ether is more volatile than Bitcoin. Investing in Ethereum is also riskier than BTC since fewer transactions per user are needed to utilize the latter. This makes Bitcoin synonymous with “ a decentralized savings account.” Ether’s demand is closely linked to its transactions, meaning its scaling limitations depress its demand to a lower level than that of Bitcoin.

The upsides and downsides

Morgan Stanley warns that both DeFi and NFT sectors are bound to see increased regulatory oversight in the future. This, it says, could hurt the demand for transactions on the Ethereum network. Other market analysts concurred that 2022 would see stricter oversight imposed on the crypto industry. The focal points will likely be the booming DeFi and NFT sectors, which have major contradictions to existing laws.

But even in light of these issues, Morgan Stanley points out what it considers the upsides of the network. The bank says Ethereum’s market potential exceeds that of Bitcoin due to its transaction-based token burning (deflationary) system. On top of that, the bank predicts that the network’s performance may improve quite significantly once it migrates to the proof-of-stake algorithm.

At reporting time, ETH was exchanging hands at $2,940, having declined 4.1 percent in the past day. Analysts point out the rising wedge pattern created on the 12-hour chart, saying this signals an increased risk of a pullback.