The explosion in bitcoin and cryptocurrency prices has catapulted digital assets into orbit this year, with the crypto market’s performance demanding Wall Street’s attention.
Bitcoin’s rally, adding almost 300% to the bitcoin price over the last 12 months, has been dwarfed by ethereum, the second-largest cryptocurrency after bitcoin by value. The ethereum price has added some 800% since this time last year.
Now, as those in the cryptocurrency industry try to forecast the market’s direction, analysts at Wall Street giant Goldman Sachs has predicted ethereum has the potential to eclipse bitcoin in the coming years—and warned the extreme crypto price volatility means it can’t compete directly as a safe haven asset like gold.
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Ethereum’s ether token “currently looks like the cryptocurrency with the highest real use potential as ethereum, the platform on which it is the native digital currency, is the most popular development platform for smart contract applications,” Goldman Sachs researchers wrote in a note to clients this week, first reported by Business Insider.
Ethereum has seen a flurry of activity on its network over the last 12 months due to the soaring popularity of so-called decentralized finance (DeFi) and non-fungible tokens (NFTs)—both overwhelmingly built on ethereum’s blockchain.
This year, DeFi, the idea that traditional financial products can be recreated using crypto technology in place of the bank, has grown to a multi-billion dollar market while NFTs, tokenizing all manner of digital assets and media on the blockchain, has captured the attention of artists, creators and sports stars.
Goldman Sachs is the latest in a string of investors to name ethereum as a better bet than bitcoin. Last month, the chief investment officer at $100 million digital asset investment manage Two Prime predicted ethereum will eventually “flip” bitcoin to become the largest cryptocurrency by value.
Bitcoin, at a price per coin of $32,000, currently has a market capitalization of around $600 billion, while ethereum, at $2,100 per ether token, is worth a combined $250 billion.
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Meanwhile, Goldman analysts warned the competition between bitcoin, ethereum and a myriad of ethereum rivals that have sprung up in recent years is exacerbating volatility and holding cryptocurrencies back from become so-called safe-haven assets like gold.
“Gold is competing with crypto to the same extent it is competing with other risky assets such as equities and cyclical commodities,” the bank’s researchers wrote. “We view gold as a defensive inflation hedge and crypto as a risk-on inflation hedge. This competition among cryptocurrencies is another risk factor that prevents them from becoming safe-haven assets at this stage.”
The bitcoin price crashed back from an all-time high of around $65,000 per bitcoin set in April after China moved to again crackdown on cryptocurrencies in the country and Tesla billionaire Elon Musk rowed back on plans for closer bitcoin integration.
The sudden price crash wiped more than $1 trillion worth of value from the combined cryptocurrency market capitalization in recent months.