‘Ether Should Outperform Bitcoin Over the Long Run,’ Says JPMorgan

Ether (ETH) has ascended to the apex of cryptocurrency in the last couple of weeks, taking the top spot from bitcoin (BTC).

As of this writing, ether has grown 40.23% so far since April 1 to a new all-time high of $2,700. In the same period, bitcoin has experienced a drop off of 7.39% from $58,772 on April 1 to $54,428, this morning. 

Difference between ether and bitcoin

JPMorgan points out the difference between ether and bitcoin as it pertains to this study. Bitcoin is much more a commodity than a currency at this juncture, competing with gold as a store of value. On the flipside, ethereum is “the backbone of the cryptocurrency economy and serves as an exchange medium.” JPMorgan commented:

“To the extent owning a share of this [ether’s] potential activity is more valuable, the theory goes, ether should outperform bitcoin over the long run.”

They go on to say, “As a consequence, a higher proportion of ether tokens behave as if highly liquid than bitcoin, 11% versus 4% by some estimates over the past month.” In a market with significantly higher spot turnover, it is plausible that the underlying base of long exposure is less reliant on leverage in the form of futures and swaps.” 

In response to this grand divide between the two cryptocurrencies this month, JPMorgan has released their thoughts on why this occurred and provided three main reasons for the shift. 

JPMorgan’s reasons for ether’s resiliency 

Last week, the cryptocurrency industry was hit hard by a liquidity shock that originated in the derivatives market, according to JPMorgan. All were affected but, bitcoin was hit harder than most and much harder than ethereum. Ether’s resistance to these events is pegged as reason number one for ether’s ability to hang on while bitcoin slipped. 

“This liquidity shock originated in the derivatives market, leading to sizable liquidations. The effect was arguable greater in bitcoin futures, where liquidations of net longs since that event total 23% of the ex-ante open interest; that said ether is not behind with 17% of net long liquidations over the same period,” JPMorgan states. 

While on-screen liquidity on BTC markets continues to improve on traditional asset classes, the risk reportedly remains high. As with many other global markets, the majority of liquidity comes from traders who are high-frequency-style. These types tend to run for the hills when volatility spikes and can cause these shocks to reverberate across the industry. 

The second reason that JPMorgan points out is ether’s lack of reliance on derivatives markets to transfer, or warehouse, risk.

“In a market with significantly higher spot turnover, it is plausible that the underlying base of long exposure [in ether] is less reliant on leverage in the form of futures and swaps [than bitcoin].”

The third and final major reason for the discrepancy in BTC and ETH right now is ether has a more durable underlying demand base. 

“The ethereum network has long been characterized by a higher pace of transactions on the public blockchain than does bitcoin, likely due in no small part to increased activity on DeFi and other platforms,” JPMorgan points out. 

Based on this, JPMorgan believes that a disproportionate amount of ether tokens act as highly liquid than bitcoin. Some estimates put the number at 11% (ETH) and 4% (BTC).