Goldman Sachs believes that Ether is likely to replace Bitcoin as the dominant cryptocurrency, considering multiple factors such as real-world usage, user base, and speed of technology iteration.
In terms of market trends, Goldman Sachs highlights that the key difference between the current cryptocurrency market and the 2017-2018 bull market is the entry of institutional investors. However, with the recent slowdown in institutional investor participation (fewer cryptocurrency ETF inflows) and the proliferation of alternative coins, the market is once again dominated by retail investors.
Goldman Sachs says this shift from institutional to retail investors is increasing the likelihood of a major market decline. The current high volatility in the market will continue until cryptocurrencies have a potential real economic use independent of price.
Ether has great potential
Goldman Sachs said the Ether system supports smart contracts and provides developers with a way to create new applications. Most decentralized finance (DeFi) applications are now built on the Ether network, and most irreplaceable tokens (NFTs) are also purchased using Ether.
Compared to Bitcoin, Ether has a larger transaction volume. As the use of Ether becomes more widespread in DeFi and NFT, Ether will establish itself as a first mover in the application of crypto.
Goldman Sachs emphasized that Ether can also store almost any information securely and privately on a decentralized ledger. This information can be tokenized and traded. This means that the Ether platform has the potential to become a large trading marketplace for trusted information.
Investors can already sell digital art and collectibles online through NFT, but that’s only a fraction of its practical uses.
Goldman Sachs believes that in the future individuals could store and sell their medical data to pharmaceutical research companies via Ether. Digital archives on Ether could contain personal data, including asset ownership, medical history, and even intellectual property.
Ether also has the benefit of acting as a decentralized, global base server. Unlike a centralized server like Amazon or Microsoft, this may provide a solution for sharing personal data.
Bitcoin is not scarce enough to support its value storage function
The main market argument in favor of Bitcoin having a store-of-value function is its limited supply. However, Goldman Sachs believes that it is demand, not scarcity, that is driving the success of value storage.
There is currently a steady supply of all the major price-storage assets in the market: the supply of gold has been growing at close to 2% for centuries, but gold is still an accepted means of preserving value. Rare elements like osmium, on the other hand, are not a means of storing value.
Goldman Sachs emphasized that a fixed and limited supply could spur hoarding and force new buyers to outbid existing buyers, driving up price volatility and creating a financial bubble. It is more important to reduce the sharp and unpredictable growth of new supply than to maintain value with a limited supply. There is currently no cap on the total supply of Ether, but there is a limit to the annual supply growth to meet this criterion.
Rapidly evolving technology breaks the first-mover advantage
Proponents of the view that Bitcoin will dominate the cryptocurrency market argue that it has a first-mover advantage and a large user base.
But Goldman Sachs points out that history has proven that first-mover advantage is difficult to maintain in an industry where technology is changing rapidly and demand is growing. If established players fail to adapt to changing consumer preferences or competitors’ technological advances, they may lose their dominant position (Yahoo vs. Google).
The overall number of active users in the cryptocurrency market is currently very volatile. In this environment, crypto technology is simultaneously changing rapidly and systems that cannot be upgraded quickly may become obsolete.
In terms of technology, Ether is currently undergoing a rapid upgrade of its protocol (faster than Bitcoin), transitioning from Proof of Work (PoW) to Proof of Stake (PoS).
Goldman Sachs says PoS has the advantage of greatly improving the energy efficiency of the system by rewarding miners based on the amount of Ether they choose to hold (rather than their processing power), which would end the power-burning race to reward miners.
Bitcoin’s energy consumption is currently at the level of the entire country of the Netherlands, and its energy consumption could double if the bitcoin price rises to $100,000. From an ESG perspective, this makes bitcoin investing challenging.
In terms of security stability, Goldman Sachs says all cryptocurrencies are still in their early stages, with rapidly changing technology and an unstable user base.
While the ethereum PoS protocol validates security issues in the process, bitcoin is not 100% secure. The top four Bitcoin mining pools currently control nearly 60% of the Bitcoin supply, and the excessive concentration leads to the potential for fraudulent transactions.
Ether also faces many risks, and its dominance is not guaranteed. For example, if the Ether 2.0 upgrade is delayed, developers may choose to move to competing platforms.
The market will continue to fluctuate until real use value emerges
Goldman Sachs notes that the key difference between the current cryptocurrency market and the 2017-2018 bull market is the presence of institutional investors: a sign that financial markets are beginning to embrace cryptocurrency assets.
Bitcoin’s volatility has been high, with prices falling 30% in a single day over the past week.
Meanwhile institutional investor participation has slowed recently (cryptocurrency ETF inflows are down) and alternative coins are popping up, suggesting the market is once again dominated by retail investors.
Goldman Sachs believes that this shift from institutional to retail investors is increasing the likelihood of a major market decline. The current high volatility in the market will continue until cryptocurrencies have a potential real economic use independent of price. This will usher in a new era for cryptocurrencies.
Posted by:HuYan，Reprinted with attribution to:https://coinyuppie.com/goldman-sachs-bitcoin-will-eventually-lose-its-crown-and-in-its-place-ether/
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