The rivalry between the two major cryptocurrencies, Bitcoin and Ether, has been messy and long-standing. And it presented a pervasive dilemma for potential investors.
While each currency has its own competing qualities, analysts at financial services firm JP Morgan have asserted that investors would be better off holding Ethereum rather than Bitcoin at a time when interest rates are on the rise.
In a recently released report, a team of analysts from JPMorgan, led by market strategist Nikolaos Panigirtzoglou, noted that higher interest rates could prove detrimental to Bitcoin’s “digital gold”, just as they do it for traditional gold. However, since the Ethereum blockchain is the power hub of DeFi and NFTs, its far wider use cases could continue to generate interest in its native token.
Last year’s foreclosure-induced economic slowdown resulted in insanely low interest rates and bond investments, leading to increased cash flow and inflation. Bitcoin had flourished in this scenario due to its perception of being a hedge against inflation. However, now that central banks are moving away from these increased stimulus in an attempt to curb high inflation, interest rates and bond yields could rise again.
Panigirtzoglou noted in the report,
“The rise in bond yields and the eventual normalization of monetary policy is putting downward pressure on bitcoin as a form of digital gold, the same way higher real yields have been putting downward pressure on traditional gold.”
PoW vs PoS
On the flip side, Ethereum has been the main driver behind the boom in decentralized financial activities and NFT trading, leading to the assumption that larger market forces might not be able to affect too much. its symbolic price. The report said,
“With Ethereum deriving its value from its applications, ranging from DeFi to gaming to NFTs and stablecoins, it appears less susceptible than bitcoin to higher real yields.”
Another factor that works in favor of blockchain is its shift to more environmentally friendly technology, according to the report. Bitcoin has been increasingly riled over the past year for using the energy extensive Proof-of-Work algorithm for minting new tokens.
Ethereum, however, is already in the process of fully switching to the proof of stake mechanism by the end of next year, making its validation and security system much more energy efficient and a preferable choice for investors. , according to JP Morgan. report, which declared,
“The greater focus by investors on [environmental, social and governance investing] has shifted attention away from the energy-intensive bitcoin blockchain to the Ethereum blockchain.”
However, the overall conclusion of the report noted that both currencies were currently overvalued and were not a preferable choice for institutional investors due to their high volatility.
A recent report by Kraken had the opposite to say, however, as it noted that Bitcoin might still have a chance to achieve higher highs before the cycle ended. On the other hand, Ethereum’s strong performance could end as it faces stiff competition from Cardano and Solana, causing market dominance to fall.
