- Joshua Lim is the former head of trading at leading brokerage firm Genesis Global Trading.
- Lim explains why investing in Bitcoin has never been so low.
- Ethereum's energy consumption, deflationary nature, and Bitcoin's divergence make it attractive.
Despite months of frenzy in the cryptocurrency markets, it was a historic year for the Ethereum network.
The merger, the technical upgrade that moved Ethereum from a power-intensive Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS), has finally happened. It was the "most ambitious thing" the industry has ever seen, and the most significant development in crypto history since the invention of Bitcoin and Ethereum, ConsenSys' Ben Eddington previously told Insider.
Eddington, who has been working on the upgrade for 4.5 years, described the merger as an "alternative to the flight engine" and "a fundamental upgrade to a value chain worth hundreds of billions of dollars."
However, despite the modernization's success, markets are unable to shake off the strict macro language and prices continue to fall. According to Messari, Bitcoin and Ethereum are down more than 70% from their all-time highs on Wednesday.
Joshua Lim, former head of trading at Genesis and Galaxy Digital, expects Ethereum to become the “leading cryptocurrency platform” in the future.
ETH challenges BTC
Lim told Insider that Ethereum could challenge Bitcoin as the “dominant crypto reserve and financial asset.”
Bitcoin is the oldest and industry-leading cryptocurrency with a market capitalization of $1 trillion. The basis for bitcoin's value is relatively simple: a store of value with a limited supply of 21 million, which proponents say provides a hedge against inflation. However, with nearly 40 years of high inflation and a looming recession, the value of Bitcoin continues to decline.
Lim says that the first wave of institutional and public interest in cryptocurrencies came through Bitcoin, and the second through Ethereum.
In 2020, one of Wall Street's most successful hedge fund managers, Paul Tudor Jones, revealed that he had bitcoin in his wallet when central banks started printing more money. Large public companies such as MicroStrategy and Tesla have also started buying bitcoin for their reserves. MicroStrategy, a software development company founded by Michael Saylor, purchased $425 million worth of Bitcoin between August and September 2020. Morgan Stanley subsequently became the first major US bank to offer some wealthy clients access to Bitcoin funds.
“Bitcoin’s next logical step is to replace gold as a non-sovereign store of value,” Sailor told MarketWatch's Best New Money Ideas Festival.
Lim says that Ethereum will not exceed Bitcoin's market cap at least "for a few quarters," noting the Fed's focus on fighting inflation.
“Will there be a reversal? It will take another massive rally in macro-risk assets to strengthen Ethereum’s institutional advantage.”
Lim added, “In the past, we have seen a massive influx of funds into Ethereum as a financial asset. In the 2017 cycle, retail investors entered Ethereum to launch an ICO. In this cycle, institutional investors recognized Ethereum as the basis for a lot of DeFi and stablecoins, so a lot of capital inflows The new asset class will be transferred to Ethereum instead of Bitcoin.”
Ether as the origin of contraction and the story of ESG
“The potential for ether to drop in value at the point of sale has made it more attractive to investors,” Lim says.
The merger has not only significantly reduced the power consumption of Ethereum, but has also changed the economics of the network.
According to Citigroup, the switch to PoS reduced Ethereum production by 4.2% annually, making it a deflationary asset and improving its role as a store of value. In a note to clients in August, the company described the point-of-sale move as a way to make Ethereum a “profitable asset” with “cash flow.”
The ESG story can also boost institutional capital in Ethereum. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin transactions using the PoW model consume about 150 TWh of electricity annually. That's more than Argentina's total population of 45 million.
“Ethereum’s 99.95% increase in power efficiency at the point of sale is a clear story about ESG that distributors can point to,” Lim added.