Bitcoin (CRYPTO: BTC) has long been the most popular cryptocurrency, almost becoming synonymous with the category in the public consciousness.
For almost as long, Ethereum (CRYPTO: ETH) has played the bridesmaid as the second most prevalent digital currency.
But one expert reckons Ethereum has several aspects going for it that could give it a fighting chance to overtake Bitcoin.
According to Saxo Markets cryptocurrency analyst Mads Eberhardt, the last time Ethereum had a chance to do this was during the 2017 boom.
"In late 2017, the most discussed topic in the crypto space… was whether Ethereum would flip Bitcoin in terms of market capitalisation," he said.
"It never happened in 2017, as the Ethereum bull run in 2017 was somewhat unsustainable, as it was mainly driven by the ICO [initial coin offering] bubble."
Ethereum's 'crypto winter' boost
After that, cryptocurrency prices plunged and went sideways for much of 2018 and 2019.
During this "crypto winter", Bitcoin's lead grew as a "safe-haven asset". But, functionally, Ethereum started having a remarkable time.
"In the crypto winter, serious innovation took place in the crypto community, whereas numerous new use cases on Ethereum were presented… non-fungible tokens (NFTs), stablecoins, decentralised trading, insurance, and lending, counting protocols like MakerDao, Uniswap, Compound, and OpenSea," said Eberhardt.
Once cryptocurrencies regained momentum last year, Ethereum took off. It went from $213 in late March 2020 to now more than $4,000.
Eberhardt believes those real-life applications developed over the crypto winter convinced the market of the usefulness of Ether.
"Investors get the sense that Ethereum can facilitate authentic use cases in strong contrast to previous highly speculative ICOs."
Ether is already bigger than Bitcoin on some measures
According to Eberhardt, the Ether-Bitcoin "flip" has already happened on some metrics.
"The use of notably decentralised protocols and stablecoins on Ethereum have made Ethereum settle over 3 times the value of Bitcoin on its network on a daily basis, while the total amount of fees paid daily is 50 times higher than on Bitcoin."
This is not surprising to Eberhardt because of Ethereum's utility, as opposed to Bitcoin's role as just a "store of value".
"In this context, the transaction fees paid markedly say something about Ethereum's scalability being almost as bad as Bitcoin's," he said.
"As Ethereum is able to handle only around 15 transactions per second, the fees have escalated significantly over the past year, effectively acting as a detriment to Ethereum's growth."
However, this scalability issue will be resolved in an upgrade dubbed ETH 2.0, due next year.
Is flipping inevitable?
Technology upgrades are crucial to Ether's ability to overtake Bitcoin in market capitalisation, according to Eberhardt.
"This involves increasing scalability within an acceptable short timeframe, adequately keeping the intense competition coming its way at arm's length," he said.
"In terms of regulation, decentralised protocols using Ethereum can be subject to heavy regulation, imaginably limiting the growth of Ethereum. On the contrary, the green agenda can hurt Bitcoin due to its extreme energy consumption."
The other side of the equation is whether Bitcoin's role as a store of value is further recognised by institutional investors.
Prominent listed companies like Tesla Inc (NASDAQ: TSLA) and MicroStrategy Incorporated (NASDAQ: MSTR) revealed earlier this year that they have billions of dollars worth of Bitcoin on their books.
"There was an expectation earlier this year succeeding the purchases by several companies that others would follow the lead. Since then some minor companies have bought Bitcoin, but not to the degree expected previously."
So it remains to be seen whether Ether can overtake Bitcoin. Both currencies have challenges to overcome in the next 12 months or so.
JP Morgan analysts this week reported that institutional investors have reduced their exposure to Bitcoin and transferred it to Ethereum.
"Researchers found that big investors are eschewing Bitcoin futures, pivoting instead to Ethereum as the number two cryptocurrency by value gains momentum thanks to the ongoing non-fungible token craze and expectations Ethereum-based decentralised finance will rival traditional finance," reported Forbes.
