In the report, SC state that if Bitcoin can remain between $50k and $175k over the long-term Ethereum will reach a price valuation of $26,000 to $35,000, which is more than a 900% increase from its current price. They did qualify this statement by saying that “For this valuation range to be attainable, we assume that BTC would also need to trade towards the upper end of its valuation range,” yet the overall sentiment is that with increased adoption and strengthening of the narrative, this is a possibility. 

Since the emergence of Digital Assets (DA) into the wider consciousness of Traditional Finance, Bitcoin has generally been seen as the only viable asset and so the only one worthy of capital allocation. This is due to a few reasons; (1) Bitcoin was the first Cryptocurrency and Digital Asset and therefore has been around longer and has more analysable market data. Consequently, the asset is seen as more trustworthy than many newer Cryptocurrencies, as its survived more ‘crypto winters’ and crashes than any other DA. So despite the price volatility its seen as relatively stable for the industry. Nassim Taleb’s ‘Lindy Effect’ may be seen as a good basis of understanding why this is important. 

(2) The Narrative of Bitcoin is one that is relatively easy to understand if you are coming from a traditional finance view. BTC came as a reaction to the 2008 financial crash and the irresponsible behaviour by big banks and institutions considered ‘too big to fail’, the debt-creating system of fractional reserve banking, quantative easing and the revolving political door between regulation and politics all of which sew distrust in the system and leave the taxpayer poorer today than they were yesterday. Bitcoin was designed to be the opposite of this, a peer-to-peer network dependant on no single point of failure or intermediary, in which the asset transacted is cryptographically secure and hard capped at 21 million BTC making it digitally scarce and deflationary by nature. Due to this much of the narrative of Bitcoin has always been that it’s a long-term store of value, a hedge against inflation and is therefore similar to a digital gold. If you can grasp the basics of how the system secures itself, you can see how this narrative has power and why it has picked up momentum in traditional finance. 

(3) Bitcoin is relatively simplistic in relation to the other Crypto projects out there. Whilst the world of crypto may seem to represent a complex mess of constantly evolving concepts and innovation, Bitcoin on the other hand has remained the same. Bitcoin has remained the same with intention, as the core developers and contributors to the network chose to keep the network in-line with the founding vision of its creator Satoshi Nakamoto instead of innovating. Since the beginning there have been Bitcoin maximalists who see Bitcoin as the only blockchain that will survive due to its use case outlined above, this group of people pushed back against more forward-looking contributors who wanted to build upon the foundations of Blockchain technology and create a new, more transparent and more efficient Internet. By keeping to the founding vision of Satoshi, Bitcoin has retained a clear and easy-to-understand purpose making it easier to buy into the vision than that of Ethereum, which even some of its developers struggle to put into concrete terms. 

However, in reality this simplicity is a trade-off, as a lack of innovation on the Bitcoin Blockchain means that growth potential is capped, as without use-cases beyond the obvious there’s only so much adoption you can take on. Furthermore, with Bitcoin slowing down in its rapid growth over the last few months, many institutions have been looking to find the returns that they got through early BTC adoption. Ethereum has been the obvious choice for many of these parties; being the second largest cryptocurrency by market capitalization whilst also mapping to the Bitcoin price graph of 4 years ago almost perfectly, leading many to speculate that Ethereum will continue to follow Bitcoins lead and perhaps outperform it in the future. 

Whilst people struggle to understand Ethereum and many of the other Alt-coins due to their complexity, the possibilities opened up by these platforms are endless. Ethereum and many of its competitors offer a much larger opportunity in terms of growth, as the software is capable of computing automated processes known as smart contracts. Smart contracts can be likened to a vending machine made of code; you put in an input (£1 For a coke), the machine runs a pre-outlined mechanism and then delivers you an output (gives you the coke). This functionality on a blockchain means that rather than just storing transaction data on-chain, these blockchains can run and store increasingly complex processes that allow you to build out apps and other sorts of high-function code on top of this smart contract platform. Meaning that Ethereum and its Smart Contract competitors are likened more to large software companies such as Microsoft or to the coding layers that make up the internet than to an actual currency.  

Furthermore, the functionality of smart contracts and DApps (Decentralised Applications) is not just conceptual but is active in real-time with NFT’s, DeFi, DAOs and more offering immense value and growth opportunities to early adopters. This growing ecosystem is still at the early stages of what is possible, with many likening it to the early days of the internet. This uncapped potential in growth throughout different areas of culture paired with an active developer community and an already significant brand equity behind the Ethereum name, make it an extremely attractive asset to forward-looking institutions looking to move beyond their Bitcoin exposure.  

Whilst the power of the Bitcoin narrative still holds sway with many seeing inflation as inevitable due to COVID borrowing and further quantative easing, Ethereum’s narrative continues to develop as a complex tapestry of many interweaving communities and high-value projects building on this infrastructure. Bitcoin money narrative may be strong, but Ethereum offering the digitalisation of culture and ownership in an already digital age makes it even more enticing to those who understand its power. 

By Oliver Wink