Rome is about to fall: why a merged Ethereum will overtake Bitcoin

Yesterday, Ethereum successfully completed The Merge. ?

Since then, Ethereum’s token economy has changed drastically.

Ethereum produces a lot less ETH.

Rome is about to fall: why a merged Ethereum will overtake Bitcoin

The reduction in ETH supply has had a major impact.

Ethereum is generating more revenue and is profitable, greatly increasing its competitive position with established asset Bitcoin.

Does this mean the Flippening (i.e. Ethereum surpassing Bitcoin in market cap) is just around the corner?

Is this good for cryptocurrencies?

Why the Flippening is good for cryptocurrencies

The Flippening refers to the fact that the market cap of ETH will eventually surpass that of Bitcoin.

Of course an “ETH guy” like me would definitely want the Flippening to happen, we all hold ETH after all.

But aside from our personal interests, is the Flippening a good thing for cryptocurrencies?

Is there anything wrong with Bitcoin being number one in market cap?

Hasn’t it all been great so far?

If the Flippening could be good for cryptocurrencies, why hasn’t it happened yet?

These issues are intertwined, and perhaps it is best to start with the details of BTC returns.

Reliable does not mean investable

BTC is the most credible neutral asset. This is because the Bitcoin protocol is mature and will not change, and Proof of Work (PoW) substantially reduces risk due to its simplicity and proven track record.

Over the years, organized groups have unilaterally attempted to modify Bitcoin’s underlying code and increase its node size at least dozens of times, and BTC has withstood the test. Regardless of Satoshi Nakamoto’s original intentions, the reliability of BTC has become its core intrinsic value proposition.

However, the reliability of Bitcoin does not mean that the asset will retain its value or be denominated in purchasing power or fiat currency. Conversely, Bitcoin’s core design is non-programmable, with any accumulation of value for holders, and its mining cost structure results in significant value leakage.

This is why, for Bitcoin, being reliable does not equate to being investable.

With that background out of the way, let’s take a look at how BTC works, starting with historical returns.

What happened in 2016?

From 2013 to 2016, if you bought low and sold high, BTC returned about 6x. But if you buy BTC at the 2013 high and sell it in 2016, you get nothing.

After 2016, the situation was completely different. If you bought BTC in 2016 and held it today, you would have made 20x to 40x.

How about buying BTC at the 2016 low and then selling at the 2021 ATH (price high)? You made 130 times. nice.

“But bro,” one might protest, “before 2016 were the dark ages of cryptocurrencies. That doesn’t count. We’re just getting started.”

Are you sure that’s all?

What happened around 2016 that caused BTC to perform better in the years since?

Before or around 2016, what changed in Bitcoin that created huge returns?

Bitcoin itself has not changed. After all, immutability is the hallmark of Bitcoin and the source of its infallibility. Of course, the Lightning Network was launched after 2016, but it was hardly popular.

What else could have happened around 2016 that unlocked Bitcoin’s potential? Maybe the world slept on bitcoin and woke up for some reason?

Or maybe there’s something brewing in BTC that we can’t see, and this milestone was completed around 2016?

None of these explanations are reliable. The idea that Bitcoin somehow developed or unlocked its potential around 2016 simply cannot be explained by the narratives and numbers we’ve seen over the past few years.

Bitcoin rides the Web3 ride

So what exactly happened?

In my opinion, the simplest fact that best fits the historical narrative and data is that every major catalyst in the cryptocurrency market since 2016 has been driven by the promise or fulfillment of Web3 adoption, which Bitcoin does not support .

In 2016, a small project called Ethereum began to achieve major success, striving to make the public chain a computer and not just an abacus.

The truth is, at this stage of development so far, BTC has just borrowed the wind and surfed the waves of really useful stuff created by the Ethereum community (and a few others).

At this point, a Bitcoin fanatic or holder might retort, “Wait, if it’s so unimportant, why would investors buy BTC? BTC’s market cap is about 38%. Are you kidding me? What do you think? Is a $400 billion market cap just a mistake?”

Yes, that’s exactly what I’m talking about and will demonstrate below.

This is why BTC as an investment is not sustainable, why the Flippening is guaranteed, and why the Flippening is good for cryptocurrencies – because it will eliminate an uninvestable asset as our industry leader.

perfect unsustainability

Bitcoin fully fits the definition of an unsustainable investment. If we take a serious look at Bitcoin’s use of PoW, it is difficult to argue that Bitcoin is sustainable in terms of value preservation or appreciation.

Bitcoin transaction fees are paid directly to miners and have no value to BTC holders.

This makes BTC permanently unprofitable, especially given the expensive cost structure of mining.

Note that Bitcoin’s total fees may be too low to support a sustainable security budget, making the 21 million supply cap potentially a security issue, but that’s another story entirely.

The annual inflation rate of BTC before the 2024 halving is 2%.

This sounds good, right? What’s wrong with just 2% inflation?

The problem is that inflation (issuance) in PoW is a direct capital drain on BTC valuation due to mining economics.

This, coupled with the lack of liquidity in spot prices, means that miners selling BTC is doing a lot of damage to BTC’s market value. Let’s analyze…

On average, in the medium term, miners must sell most of the BTC they earn because to compete for $1 of BTC, they need to spend the same $1 in hardware plus energy costs.

This is a huge problem for BTC (and ETH before yesterday’s merger!) because selling X% of the supply hurts the market cap far more than X%.

According to statistics, selling $1 of BTC could damage the market cap by $5 to $20.

The open secret in the crypto market is that you cannot sell more than a fraction of the total supply at the spot price. The order book is thin. Liquidity is weak. HODL live, buddy. So even if not everyone can sell at today’s prices, miners are by definition consuming scarce resources by constantly selling.

That said, BTC miners may only sell about 2% of the total supply each year, but they receive more than 2% of their annual net inflows in fiat. And since BTC fees are always low and paid to miners anyway (resulting in a sell-off), these facts have two very important implications that many BTC holders ignore:

  1. Someone has to buy a lot of BTC every day to keep the price flat. In 2021, around $46 million in net fiat inflows per day will be required to keep BTC prices flat. In other words, “I have a good investment presentation, and we only need $46 million in new capital a day to avoid losing our principal…”
  2. When BTC investors get 50% or 5x or 40x returns, those profits can only come from new entrants. Holders do not generate meaningful fee income, and there is no meaningful use of Bitcoin, and the price of BTC cannot remain flat due to mining costs, so by definition anyone buying BTC at ATH cannot Make money on an ongoing basis. An average return of 0% is impossible.

Rome is about to fall: why a merged Ethereum will overtake Bitcoin

social imbalance

Who would knowingly buy unsustainable long-term investments? Who would recommend buying it? Last year, BTC accounted for about 40% of the total market value of cryptocurrencies of $3 trillion. How did this happen?

In short – crypto boomers like me seem to love this reference – no one gets fired for buying IBM.

As far as I know, a handful of different types of buyers may have driven capital into BTC, each with their own reasons, and most of them unaware of the true risk profile of their investments.

  1. First, new entrants buy BTC. These people may be veteran traders transitioning from traditional hedge funds to web3, established institutional investors, ultra-high net worth individuals, and ordinary retail investors. These new entrants are showing up on web3 – basically during a bull market, by the numbers – they’re all excited, they know that cryptocurrencies are new and complex, and they see that we’re in a long-term to the On the moon trip, they will most likely allocate funds to a basket of top cryptocurrency assets in proportion. “Proportional” is an investment term, in this case, it means “I don’t know anything, I will buy according to the current market value ratio.” These entrants are often the lambs of the future, and BTC as a kind of The slaughter of unsustainable investing.
  2. Second, long-term allocators buy BTC. These people may be crypto OGs who have enjoyed early investment returns, or crypto VCs with more connections and capital, say, willing to cultivate independent investment theories. These people are buying BTC because they really don’t have or don’t want to build confidence in where the space is going, and they want to avoid getting bogged down in what they see as risky theories. To make matters worse, these long-term asset allocators are often pundits who have played a major role in helping drive new entrants to BTC.
  3. Third, reflexive wolves (greedy people who only think about themselves) buy BTC. But they may also sell all at the next ATH. These people tend to be the smartest, savviest, most lustful crypto OGs, VCs, and financial folks turning to Web3. They are usually well aware that BTC is not the best performing investment. However, they feel that for the greater good (i.e. often theirs) we must avoid disrupting the good status quo and push Bitcoin hard. They felt that if BTC collapsed, it would mean huge losses for the cryptocurrency’s biggest investors, which could damage the entire industry and their portfolios. Therefore, they tend to procrastinate. Some may question their existence or think they are merely traders. But I’ve seen some stubborn people fit these traits.
  4. Fourth, traders buy BTC and exchange profits for BTC as the cryptocurrency’s de facto reserve currency. Traders just go with the flow—literally. They know that in the current era, BTC does better in bad times and worse in good times. Traders have very short time horizons, they just use BTC as a home base for riskier games. In a way, traders are the most rational and least disruptive of all BTC buyers.
  5. Fifth, BTC’s “true love” buys BTC. These are hardcore Bitcoin enthusiasts who truly believe that BTC is the most reliable money in the history of the world. Not only do they believe in BTC’s top-notch reliability, but they also believe that this reliability must translate into an excellent long-term investment and by far the best cryptocurrency investment on a risk-adjusted basis.

Here’s the thing – out of these five BTC buyers, only true enthusiasts will stick around after BTC loses its dominance. Overall, Bitcoin buyers are experiencing the biggest reflex game in modern finance. Of these, only the reflexive wolves (the third type) have any idea of ​​the nature of the game.

Of course, it’s an oversimplification to categorize BTC buyers, but I think it’s useful.

At this point, the diehard BTC fans and the Flippening skeptics are probably confident.

“So funny. The water was wet, the sun came up this morning, and this brain-smooth ETH dead bull said we were all wrong and BTC was doomed as an investment vehicle.

So why hasn’t the Flippening happened yet? “

Let me explain: the numbers are the reason.

Historically, ETH miners have earned a lot more than Bitcoin miners. If the cost structures of the two chains were swapped, i.e. if BTC miners earned the same income as ETH miners (and vice versa), or if the merger was ready two years ago, I think the flippening could have happened.

Let’s explore the numbers…

Standing on the heavy shoulders of giants

If miner sell-offs matter — and it does, as stated above — it also matters that ETH miners earn 2.5x to over 4x more than BTC miners (normalized by market cap) over the past few years.

Rome is about to fall: why a merged Ethereum will overtake Bitcoin

Last year, BTC miners earned $16.6 billion, while ETH miners earned $18.4 billion.

If we swap the cost structures of Bitcoin and Ethereum over the last year, ETH miners will earn and sell about $6 billion, while BTC miners will earn and sell about $50 billion.

This is a key point, so let me stress it again: last year, Ethereum miners earned and sold $1.8 billion more ETH than Bitcoin miners sold in BTC. Assuming we swap the cost structure between the two chains, in 2021 alone, BTC miners will earn and sell about $44 billion more BTC than Ethereum miners will sell ETH ($50 billion minus $6 billion) .

To prove it: in 2021, Ethereum will be so expensive to run compared to Bitcoin that if costs were swapped, ceteris paribus, Bitcoin would require an additional ~$45.8 billion in net Fiat inflows (i.e. new buyers of BTC) to keep the market cap of both chains practically the same as they are today.

From $1.8 billion in Bitcoin to $44 billion in Ethereum, we got $45.8 billion.

These very large numbers—especially relative to its market cap, as ETH faces greater selling pressure from miners—are the key drivers that the Flippening has yet to happen.

nonexistent emperor

What will happen next?

Ethereum has removed the risk of miner sell-offs, moving from consolidation to PoS.

We are now on the path to profitability, with Layer2 scaling, and Web3 being adopted globally.

Ethereum has become a positive-sum productive economy.

In the next few years, for the reasons above, I think ETH has a 99% chance of surpassing BTC’s market cap. 1% is unknown uncertainty – tail risk: like aliens appear and force us to use BTC as the only global currency.

The profitability of ETH, the low cost of verification, the huge growth of dapps, and the good vibes of benevolent trusted neutrality will all move our industry into a post-BTC era through the Flippening.

Fall of Rome

The day at The Flipping will be explosive and spectacular.

Of course, in a short period of time the Flippening could be lifted after it happened. But on the medium-term time horizon, this is a one-way transition for BTC to become an antiquated cryptocurrency investment.

Unfortunately, many well-meaning cryptocurrency and Web3 investors are likely to lose a lot in BTC’s slow decline and violent crash.

In short, Ethereum is currently in the initial cost structure of PoS, and there are expansion challenges (the L2 ecosystem has not yet begun to fully bloom), so Bitcoin’s ability to maintain a current market value ratio of about 40% depends on these reasons. Highly reflexive.

Today, the Flipping ratio is just under 50%.

Rome is about to fall: why a merged Ethereum will overtake Bitcoin

As the market cap of ETH versus BTC slowly rises, we will hit a breaking point where predictions will become common sense, and then the flipping ratio will jump from 70% to 100%, or 80% to 120% in a day. Say goodbye to the era of BTC.

Why the Flippening is Good for Crypto: A New Era of Health

My guess is that ultimately, years later, all of us, including most BTC holders today, look back on how silly the idea of ​​BTC being to stay number one would be.

in short:

  • BTC is naturally an unsustainable investment and, with no application layer and significant revenue prospects, always will be.
  • BTC mining will never be environmentally friendly, even if a large portion of mining comes from green energy.
  • BTC takes capital, attention, and especially monetary premium, which can then be channeled into Ethereum and other ecosystems to more directly and proactively improve the world.

The Flippening is to be expected, as BTC not only fails to accumulate value, but also leaks value. And the Flippening is good for cryptocurrencies, because having a non-investable, value-diluting asset as an industry leader is unstable and unhealthy, and we need a stable and healthy investment environment for Web3.

My opinion on the Flippening has not changed in two years.

1/ ETH/BTC flippening explained at a mechanical level.
Compared to ethereum’s proof of stake, bitcoin’s proof of work is too expensive. Here’s why.
— ryanb.eth??? (@ryanberckmans) October 30, 2020

The fate of BTC is through the Flippening, and finally becomes a respectable and lovable pet stone.

That is, the most original digital collectibles. Maybe then I’ll buy some to keep in the display case.

After the Flippening, a truly healthy era of cryptocurrencies will begin.

An era of environmental friendliness, streamlined cost structures, profit from valuable applications, Web3 development to global ubiquity, and Ethereum as a global settlement layer – a level playing field for all mankind.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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