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In the past decade, cryptocurrency markets have grown from an obscure internet fanclub to an actual global asset class. We went from Bitcoin being the first and the only cryptocurrency in 2009 to now there being over 10,000 cryptocurrencies solving various problems, carving out various niches for themselves. If we take a look at the market capitalisation for the entire cryptocurrency market, it went from being next-to-nothing for many years to going over $2.5 Trillion, to now hanging around $1.7 trillion at the time of writing.

A multi-trillion dollar market capitalisation certainly puts crypto in the league of legitimate asset classes. However, for most of the market’s lifespan, it has been absolutely dominated by the original cryptocurrency, Bitcoin. Taking a look at the Bitcoin dominance chart, which tells us what percentage of the total crypto market is Bitcoin, we can ascertain just how much.

Before the 2017 cryptocurrency boom, Bitcoin was nearly the entire crypto market. But that seems to have changed in the years that followed. As acceptance for cryptocurrencies and adoption for the various use cases grew, the share of the total market that Bitcoin occupied was reduced. Even after the bull run Bitcoin went on after its post-halving cycle in 2021, its share of the market remained lower than earlier. 

Part of the reason for that is the acceptance and adoption of some of the other large cryptocurrencies that solve different problems compared to Bitcoin. The biggest one after Bitcoin is Ethereum, which was made as a platform to deploy smart contracts and build decentralized applications. Launched in 2015 at a price of nearly $1, Ethereum now trades at over $2,600 at the time of writing. It has the second-largest market capitalization of any crypto after Bitcoin. It also has the largest ecosystem of projects working on its blockchain in the entire market. By all means, Bitcoin and Ethereum are the two biggest projects in crypto.

Let’s have a look at how both these cryptocurrencies grew to the scale that they did.

On January 3rd, 2009, the bitcoin network came into existence with Satoshi Nakamoto mining the genesis block. Embedded in the coinbase of this block was the text:

“The Times Jan/03/2009 Chancellor on brink of second bailout for banks.”

The text refers to the headline published by The Times on January 3, 2009, during the repercussions from the 2008 banking crisis. This made it clear that the purpose of Bitcoin was to give people another option if they didn’t want to trust the banks. In the years following, Bitcoin ended up giving rise to a financial counterculture of sorts that had never been seen before. Maybe it was the ideological structure of the system, or maybe it was being born from a crisis, but the community that liked Bitcoin, loved it almost religiously. 

Still, what we call “money” is a weird concept. Someone can develop the most fool-proof system in the world to replace our money and it would only be worth anything if enough people use it and believe in it. The first real transaction made with Bitcoin was the infamous 2 Pizzas bought with 10,000 Bitcoins, worth about $30 at the time. That transaction is widely regarded as the first stepping stone that got Bitcoin where it is today. However, the first usage of Bitcoin on any meaningful scale, was at the darkweb marketplace, Silk Road. Although extremely illegal, the idea behind Silk Road was libretarian, a free market in the absolute sense. The marketplace was shut down by the US government in 2013, making international headlines. All of the 144,336 Bitcoins were seized, but not before showing the world that Bitcoin could be used as an actual transfer of value.

Here’s a chart showing the number of daily transactions that have taken place on the Bitcoin network. The transactions this time in 2010 were 242 a day on an average, against 2,63,000 today.  

A study by Stanford University aimed to explain the exponential rise in Bitcoin price and transaction volume mathematically. 

 Velocity = Transaction Volume/Exchange rate*Supply of Bitcoins

Velocity is a measure of how quickly the money is moving in the economy. We know that the supply of Bitcoins is limited, and minting new Bitcoins is slowing down with time until it’s not possible anymore. We also know that Bitcoin’s transaction volumes are growing exponentially because of various reasons like acceptance by the people as a legitimate asset class, shedding of the darkweb links, and more recently, institutional adoption. The equation can be adjusted to explain any of the other components. 

Bitcoin’s velocity has been fairly volatile over the years. Here’s a comparison between Bitcoin’s velocity and the US’s M2 money’s (cash + non-cash liquid assets) velocity.

We can observe that for most of the last decade, Bitcoin’s velocity has been more than that of the gold standard of fiat money, the US dollar, which, along with the above equation, may help in explaining why Bitcoin’s price has risen exponentially against the US dollar in the last decade.

Ethereum on the other hand, uses the underlying blockchain technology to solve a whole other problem. While the cryptocurrency could still be used to transfer value, it’s primary purpose is to build and deploy smart contracts, which enable the creation and usage of decentralised applications (dApps). While Bitcoin aims to be the digital gold, Ethereum’s creators designed it to be the digital steel, being used as the building block for a decentralised digital world, where its native currency, Ether, would be used to pay for the network usage. 

Since Ethereum has such broad potential uses, it’s rise in popularity and price can only be explained by the rise in popularity of the different use cases that are enabled by Ethereum. 

DeFi – decentralised finance is the umbrella term used to describe all the trust-less financial products built using smart contracts. In recent years, the total value locked (TVL) in DeFi products has grown exponentially, with the number hovering about $60 billion at the time of writing. The website Defipulse keeps a track of it.

Those are big numbers, indicating that people find a lot of value in DeFi, and subsequently, the underlying architecture, which is Ethereum. 

DAOs – or decentralised autonomous organisations, are organizations represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central board or authority. The rules of the organisation are written in code. Although DAOs had a rocky start, there are now a huge number of DAOs with millions of dollars in assets. Some of the biggest ones are –

DAOs are still on their way to mainstream adoption, but if the day comes, Ethereum would be the one to enable it. 

NFTs – non-fungible tokens are crypto tokens that use blockchain technology to prove the authenticity and ownership of a unique digital asset. The multi-million dollar sales, like the $69 million artwork sold by Beeple made enough headlines to make everyone and their grandma aware of NFTs. Nearly every NFT platform right now uses Ethereum’s technology in some form.

From the outside, it may seem like there’s a fair comparison between Ethereum and Bitcoin, but when you delve deeper, things are much more nuanced. We can conclude that while the value of Bitcoin lies in how many people use and own it directly, the value of Ethereum lies in how many people use the applications that are built using Ethereum. One is now a store of value, and the other is a utility juggernaut. 

The substantial rise in popularity and adoption in the recent past of all of these use cases has meant that Ethereum has grown massively against Bitcoin in that time.

From the start of 2021, Ethereum has gone up over 300% against Bitcoin. And that brings us to the important question.

Will the flippening happen?

“The flippening” is the term used to describe the possibility of Ethereum’s market capitalisation taking over that of Bitcoin’s. So will it happen? It depends on a range of factors.
The website called The Flippening Index keeps a track of various metrics that relate to the possible market cap flip. We can use this data to make an educated guess.

The above chart shows what percentage of Bitcoin’s has Ethereum’s market capitalisation historically been. It came really close in the 2017 bull-run when Ethereum’s market cap was over 80% that of Bitcoin’s, but Bitcoin seems to have taken charge after that with a few attempts in between. There seemed to be another attempt in the current bull run with Ethereum’s price hitting nearly $4,500 and the flippening index going over 50%. 

If we take a look at some other metrics, though, the flippening has already happened. However, with so many variables that are going to be factors very soon for both Bitcoin and Ethereum, the metrics can go either way.

China widened its ban on cryptos, more regulations for crypto seem to be in the talks in the US led by the new SEC chairman Gary Gensler, heavy competition for Ethereum coming up in the form of Cardano and Polkadot, Attempting to regain the market share that Binance Smart Chain has already taken up with the release of ETH 2.0, environmental concerns for Bitcoin, and both the currencies’ network effect, 

All of these factors could have their own articles written about them. To answer our earlier question, the flippening is possible, but seems unlikely in the short term. But a better question is, does that even matter when both of them have found their place in the crypto-world?

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