The Ethereum Merge has fundamentally transformed its economic model, drastically reducing ETH's supply. This leads to an essential question: will Ethereum's market capitalization eventually overtake Bitcoin's? What would this mean for the broader cryptocurrency ecosystem, and why hasn’t it happened already?
To answer these interconnected questions, we must examine the underlying mechanics of Bitcoin’s value proposition and investment sustainability.
Understanding Bitcoin’s Value Proposition
Bitcoin is widely regarded as the most credible neutral asset in the crypto space. Its protocol is mature, largely immutable, and its proof-of-work mechanism has a long and reliable track record, minimizing systemic risk.
Over the years, Bitcoin has resisted numerous attempts by various organizations to unilalterally alter its core code or expand its node network. Regardless of Satoshi Nakamoto’s original vision, Bitcoin’s reliability has become its foundational value proposition.
However, Bitcoin’s reliability does not automatically translate into a good investment. Its design lacks programmability, offers little value accumulation to holders, and its mining cost structure leads to significant value leakage.
This critical distinction between reliability and investability is often overlooked.
Historical Performance and Market Cycles
What happened around 2016?
Between 2013 and 2016, Bitcoin’s price increased approximately sixfold for those who bought low and sold high. However, investors who bought at the 2013 peak and sold in 2016 saw no profit.
Post-2016, the situation changed dramatically. Investors who bought Bitcoin in 2016 and held until now saw returns between 20x and 40x. Those who bought at the 2016 low and sold at the 2021 peak earned around 130x.
Some may argue that the pre-2016 era was crypto’s “dark age,” but that doesn't fully explain the dramatic shift. Did Bitcoin evolve in some fundamental way around 2016? The answer is no—Bitcoin’s core protocol remained unchanged, in line with its design philosophy.
The Lightning Network was introduced after 2016 but had minimal impact on Bitcoin’s price performance. So, what actually drove this change?
The Rise of Web3 and Ethereum’s Role
The most plausible explanation is that since 2016, every major catalyst in the crypto market has been driven by the promise or implementation of Web3 applications—something Bitcoin does not natively support.
Ethereum, launched in 2015, gained significant traction by enabling programmable blockchain-based computations. Bitcoin, in contrast, has largely ridden the wave of innovation and utility created by Ethereum and other smart contract platforms.
This leads to a critical question: if Bitcoin is merely a bystander in the Web3 revolution, why do investors continue buying it? With Bitcoin’s market dominance still around 38%, isn’t its $400+ billion market cap justified?
The reality is more complex—and potentially unsustainable.
The Unsustainable Nature of Bitcoin as an Investment
Bitcoin’s proof-of-work model presents significant challenges to its long-term investment value.
Miners receive all transaction fees, meaning BTC holders do not benefit from any value accumulation within the network. Bitcoin has no meaningful revenue-sharing mechanism, especially when considering the high costs of mining.
Before the 2024 halving, Bitcoin’s annual inflation rate was around 2%. While this seems low, the economic dynamics of mining make this inflationary model highly capital-intensive.
Miners must sell a large portion of their earned BTC to cover hardware and energy costs. This constant selling pressure negatively impacts Bitcoin’s market cap far more than the inflation rate alone would suggest.
Some estimates indicate that every $1 of BTC sold by miners can reduce market capitalization by $5 to $20. This is because cryptocurrency markets have relatively thin order books and limited liquidity.
Thus, while miners may only sell 2% of total supply annually, they require a disproportionately large amount of fiat inflow to maintain price stability. In 2021, Bitcoin needed approximately $46 million in daily net fiat inflow just to maintain its price.
Furthermore, when Bitcoin investors see gains—whether 50%, 5x, or 40x—these profits ultimately come from new buyers entering the market. Without meaningful fee accrual to holders or valuable applications built on Bitcoin, the asset’s price cannot sustain itself organically.
The Psychology of Bitcoin Buyers
Who continues to buy Bitcoin despite these structural challenges? We can categorize Bitcoin investors into several groups:
- Newcomers: These include institutional investors, high-net-worth individuals, and retail investors who enter crypto during bull markets. They often allocate funds based on market capitalization, making Bitcoin a natural choice due to its size.
- Long-term holders: Crypto OGs and VCs who may lack confidence in newer projects or don’t want to admit error in their investment thesis. Many of them influence newcomers to invest in Bitcoin.
- Speculators: Often savvy investors who plan to sell at the next peak. They promote Bitcoin to protect their broader crypto investments.
- Traders: Use Bitcoin as a base currency for trading other assets. They are short-term focused and rational in their approach.
- Bitcoin maximalists: True believers in Bitcoin’s monetary value. They will likely continue holding regardless of market conditions.
Of these groups, only maximalists are likely to remain steadfast if Bitcoin’s dominance declines. The others are participating in what may be one of modern finance’s greatest speculative games.
The Mining Factor: Key to Understanding Market Dynamics
Historically, Ethereum miners earned significantly more than Bitcoin miners—between 2.5x and 4x more when normalized for market capitalization.
In 2021, Bitcoin miners earned $16.6 billion while Ethereum miners earned $18.4 billion. If the cost structures of the two networks were reversed, Bitcoin miners would have needed to sell approximately $44 billion more in BTC.
This higher selling pressure on Ethereum—relative to its market cap—has been a key reason why the "flippening" hasn’t occurred yet.
The Post-Merge Landscape
Ethereum’s transition to proof-of-stake changes everything. The Merge eliminates miner selling pressure entirely, putting Ethereum on a path toward positive revenue generation.
With Layer 2 scaling solutions accelerating adoption and Web3 applications expanding globally, Ethereum has become a productive, positive-sum economy.
Given these factors, there is a very high probability that Ethereum’s market capitalization will eventually surpass Bitcoin’s. Only extraordinary circumstances—such as unprecedented global regulatory changes—could prevent this outcome.
What This Means for Crypto
The transition will likely be dramatic. We might see a temporary flip followed by volatility, but over time, this should mark Bitcoin’s transition into a crypto relic.
Unfortunately, many investors may suffer significant losses during Bitcoin’s decline. However, in the long term, the ecosystem will be healthier with a productive, environmentally friendly blockchain at its forefront.
Ethereum’s lower cost structure, revenue-generating capability, and vast application ecosystem position it to become a global settlement layer—ushering in a new era of fairness and opportunity in the digital economy.
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Frequently Asked Questions
What is the "flippening"?
The flippening refers to the potential future event where Ethereum's market capitalization surpasses Bitcoin's. This would represent a symbolic shift in cryptocurrency leadership from a pure store of value to a productive digital economy.
Why hasn't Ethereum surpassed Bitcoin already?
Despite Ethereum's stronger fundamentals, Bitcoin has benefited from first-mover advantage, brand recognition, and a simpler narrative. Additionally, Ethereum's previously higher mining costs created significant selling pressure that limited its price appreciation.
Is Bitcoin still a good investment?
While Bitcoin may continue to have price appreciation during bull markets, its long-term investment thesis is challenged by its lack of utility value and high maintenance costs. Investors should carefully consider these factors before allocating capital.
How does Ethereum's proof-of-stake improve its economics?
Proof-of-stake eliminates the need for energy-intensive mining, reducing selling pressure from miners. It also allows ETH holders to earn staking rewards, creating a value accumulation mechanism that benefits network participants.
What role do Layer 2 solutions play in Ethereum's growth?
Layer 2 scaling solutions like rollups and sidechains enable Ethereum to process more transactions at lower costs, making it more accessible for developers and users. This scalability enhances Ethereum's utility value and adoption potential.
Could another cryptocurrency surpass both Bitcoin and Ethereum?
While possible in theory, Ethereum's established developer ecosystem, institutional adoption, and continuous upgrades make it difficult for newer projects to compete. Network effects in blockchain tend to favor established platforms with proven track records.