Arguments For and Against Ethereum ‘Flippening’ Bitcoin

flippening

The Flippening is the term for the moment that Ethereum will become the biggest cryptocurrency. In other words, the total market capitalization of Ethereum will surpass that of Bitcoin. That has not been the case in the history of crypto. This is of course hypothetical. It is a fun and hotly debated if and when it will ever happen. 

At What Exact Price Point Will the Flippening Happen? 

We can express the price of ETH in BTC in the same way we can express it in dollars. The price of ETH has recently hovered around 0.07 BTC. At what price will we see the flippening? There is not an exact price point Let’s explain.

How many crypto coins can co-exist
Or can there be more?

This price point would be easy to pinpoint if there were a fixed amount of BTC and ETH in circulation. For example, if we would have 20 million BTC and 120 million Ether, we could easily say: at the point when the price of ETH crosses above 20/120 = 0.1667 BTC, the flippening is upon us. Indeed, as a rough measure, the chart of the flippening will be extra interesting to watch closely when the ETH price will approach 0.16 BTC. But if we want to be precise we have to take the following into account.

A Moving Target

The problem is that this hypothetical 0.1667 is a moving target. Why? the amount of both BTC and ETH in circulation constantly changes. At least, the issuance schedule of BTC is known. We can know at each moment in the past and future know how many there are in circulation. For ETH, this depends on the future popularity of the network. This is because of its burning mechanism, which increases with usage.

So the way to determine the flippening would be to compare which is bigger:

The total amount of BTC * price per BTC 

versus

The total amount of ETH * price per ETH.

This way of comparing market caps is to know which is bigger (we disregard for a second that realistically, lots of BTC and ETH have been lost in real or imagined boating accidents).

You don’t have to calculate this yourself. On TradingView, there is a list with market cap per coin.

Different Flippening Metrics for a Flippening

Market Cap is an important metric to determine importance. But to get a deep understanding of the relevance of a coin, there are more metrics on which one can flip the other. 

  • Which crypto projects do people pay to use? In terms of fees, Ethereum flipped Bitcoin a long time ago. At the time of writing, the average daily fees by users are 20 times higher on Ethereum compared to Bitcoin.
  • Another Ethereum metric that has already flipped Bitcoin is the number of transactions.

See a chart of Blockchain Center with the current value of the Flippening but also other flippening metrics (100% is the flippening threshold).

Ethereum Already Came Close to Flippening Bitcoin

Mid-June 2017 was when Ethereum came closest to flipping Bitcoin: it reached 83% of Bitcoin’s market cap.

Ethereum flippening Bitcoin
June 2017 was the closest Ethereum came

The years after that marked a clear downtrend, but since the 2020/21 bull run, ETH is climbing again. 

Bitcoin and Ethereum Have Different Purposes

Is there only room for one ‘true’ native internet money? Are we in a ‘Highlander-type world’, where one must knock out the others? Or can the Flippening still mean that coins co-exist? 

No, there can be more than one. Bitcoin and Ethereum have different purposes and will co-exist, no matter which one will turn out to become bigger.

  • Bitcoin is hard money or ‘digital gold’. People (and already a few governments) buy BTC to store their wealth in a safe place that they control, and to be protected from government-induced inflation.
  • Ethereum is a decentralized ‘software development platform’ on which (mainly) financial applications are built. For example, stablecoins, decentralized finance, and NFT trading. To run those applications, the currency Ether is needed, which creates a demand for ETH.

The Paradox of Ethereum

Let’s briefly talk about the interesting question which is ‘harder’ or ‘sounder’ money. Bitcoin is of course viewed as the hardest money: it’s immutable (a meaningful change of the policy would probably create a split in the community and a hard fork). Ethereum can’t be also this, right? Its monetary policy has been changed and can be changed in the future. 

But in the view of Ethereum bulls, Ether is both sound money (‘ultrasound’ even) AND a productive asset. This may seem contradictory. You can’t both hoard money and spend it. The paradox is resolved when you realize that people who spend ETH to transact create the yield for people who stake their ETH. The burning mechanism plays a role in this. The more ETH is being transacted, the more is burned, and the more deflationary (sound) Ether becomes. 

Argument Pro Flippening: The Network Effect of Ethereum

The second of the above points adds fuel to the fire of people who think the Flippening is imminent. Ethereum is a platform on which applications are built. In the history of online technology, global platforms have accrued an insane amount of value. Windows was perhaps the first example, and Apple (iOS) later. These are platforms that third parties use to build applications. This in turn makes the platform more valuable, simply by virtue of being the dominant platform that everyone flocks to.

An example of this is the dominance of Ethereum in the world of NFT trading. ETH is the unit of account on NFT exchanges. When Bitcoin Ordinal NFTs launched, the prices on exchanges were first and foremost quoted in ETH! Ouch.

Argument Pro Flippening: Analagoues in Traditional Finance

Since April 2023 Ethereum is a fully functional proof-of-stake network. Meaning that it has become the benchmark rate for yield in the crypto world. In the way that US treasuries are the benchmark for the global bond market. This is a huge deal, and Bitcoin can’t take part in it: it doesn’t offer a yield. Again, it’s like gold in this sense.

Extending the above line of reasoning, we can easily see analogs between Bitcoin and Ethereum in traditional finance: the gold market (Bitcoin) and the US bond market (Ethereum).

  • The US bond market: 51 trillion dollars (source)
  • The gold market: 13 trillion dollars (source)

Clearly, the bond market is much bigger. But: both markets have co-existed for centuries. Note that the bond market used to be smaller than the gold market (after all, the bond market didn’t exist before the 17th century) but clearly ‘flipped’ the gold market at some point.

Another parallel with Ethereum is that the issuance of dollars and US treasuries is a living, breathing process. There is no hard cap on the total number of dollars – far from it. The same goes for Ethereum. Unlike Bitcoin whose monetary policy is set in stone, Ethereum is flexible: it could change its monetary policy and start issuing more coins if and when needed for whatever reason. 

Argument Against The Flippening

Bitcoin has no competition in its niche of proof-of-work money. Compare it to gold. It doesn’t face competition from other metals as a store of value.

The same can’t be said for Ethereum, which faces more competition and hence the tail risk of becoming much less relevant over time. To be sure, Ethereum’s position as the market leader for proof-of-stake networks is strong. But so was Windows in the 2000s. But with the advent of mobile, iOS gained a lot of traction. Or compare it to US treasuries. If (when) the US will lose its dominance, government bonds of another country will surpass it in market cap.

Conclusion

Bitcoin and Ethereum are competing to become the dominant internet native money. In a sense, Ethereum has already surpassed Bitcoin as the dominant crypto. More transactions happen on Ethereum, and more transaction fees too. Also, internet native objects (NFT’s) are priced in Ether. But the argument against a Flippening is the solid position that Bitcoin has as the first and largest proof-of-work crypto. It likely won’t have to deal with the same competition that Ethereum might face.

Arguments For and Against Ethereum 'Flippening' Bitcoin - - 2024

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