In general, ETH is “unlikely” to become a “universal currency”, but it can still compete with BTC in the long run, according to crypto trading firm Dragonfly Capital.

ETH is “unlikely to” become a “popular currency” but can still compete with BTC

The company’s general partner, Kevin Hu and senior partner Celia Wan, wrote in their latest report that institutional investors are investing in BTC as the history of their store of value grows in popularity, their understanding of Ethereum and ETH is especially “complicated” when concepts such as decentralized financing (DeFi) and non-fungible tokens (NFT). .

While one ETH speculator might argue that if the Ethereum network becomes ubiquitous and fees become stable, ETH could become a ubiquitous currency, “that is very unlikely in terms of money and essentially stable coins. Basically much better in both functions even if Ethereum becomes a dominant platform. ” “, Said the author, adding that” ETH as a medium of exchange and a unit of account is unlikely to be successful. “

Although ETH has 5 times the market capitalization of stablecoin ERC-20, its total on-chain volume exceeds ETH (10 billion).

However, since it is used as collateral in DeFi as a non-government store of value, ETH still has a chance to capture a potential market share.

“In the long term, it is conceivable that ETH could even compete with Bitcoin in terms of scarcity, durability and invincibility,” said Hu and Wan.

It is “unlikely” that ETH will become a “popular currency”, but it can still compete with BTC – the reasons for this claim

EIP-1559 will stabilize ETH monetary policy and likely halve inflation;

• The Ethereum 2.0 security model will eventually be “almost battle-tested” like Bitcoin, and the proof-of-stake consensus mechanism will likely improve Ethereum security if ETH has enough value;
• When Ethereum and DeFi become the “financial layer of the future”, ETH will likely remain one of the most important assets as it is the first large-scale security and the DeFi ecosystem is built around it.

Despite all of this, the authors note that if Ethereum and DeFi continue to grow, ETH could take 10% of BTC’s market share. If BTC’s potential market cap is around $ 4.7 million to $ 14.6 million, ETH’s potential monetary value could be around $ 0.5 million to $ 1.5 million, they said.

In addition, the partners of Dragonfly Capital point out that the ETH “will become a capital value alongside consumer goods, which will have a profound influence on the increase in the value of the ETH”.

“Even if other tokens like stablecoins can replace Ethereum as an alternative means of payment in the future, ETH is still used by network validators to set and receive rewards. Hence, ETH is likely to accumulate value from demand like consumer goods and cash flows, they say.

Additionally, venture capitalists argue that the existing DeFi ecosystem on Ethereum has created a positive feedback loop in which users both bring liquidity-based network effects to DeFi and benefit from the liquid DeFi market.

In addition, the aggregation and interoperability of the DeFi protocols has created a blocking effect for Ethereum, which makes it difficult for other layer 1 and side chains to compete.

The authors also give a very rough estimate of the possible valuation of the ETH: between 3.7 million and 4.7 million dollars “in the distant future”.

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