Bigger % Gains in 202X Bull Market: Bitcoin or Ethereum?

Bigger % Gains in 202X Bull Market: Bitcoin or Ethereum?

By Crypto Daily FX | Crypto Daily FX | 15 Nov 2020


Bitcoin is the largest-cap crypto, but is it the best performing? While it may a 'safer' bet than other crypto assets, how does it compare to Ethereum, who has been embedded as the #2 crypto for half a decade now? And though I prognosticate and agree that both Bitcoin and Ethereum will both perform extremely well over the next few years during a cyclical crypto bull market, I want to analyze which of the two has the best chance of performing better as an investment. To do this, we have to analyze a few variables that have strong implications on crypto price movements:

 

Crypto is not linear. 

Similar to other new technologies or asset classes, assets/asset classes for new, disruptive technologies with smaller market caps tend to expand and compress at exponential rates, as they have smaller market caps and are thus more prone to larger price swings due to new money entering the market, causing large 'waves.' As more money enters the market and young, new market and the asset class's market cap grows, new money entering the market has a reduced impact as it is a smaller percentage of the total market cap, causing proportionately smaller 'waves' in price. As such, when analyzing an asset class that is new and explosive like Bitcoin, it's wise to use a logarithmic chart, which extrapolates price points in exponential increments to cogently display wide-ranging market cycles and volatility. There are many ways to do it and many platforms to use with slightly different outputs, but as you can see below they provide a relatively accurate forecast over time and come to a sort of loose consensus. 

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It's impossible to forecast the exactly top of a bull market, even with sophisticated data and charting tools. However, based on these mathematics-applied models, I'll go out a limb and estimate Bitcoin's top will be $130,000 over the next few years. Let's mark that as our hypothetical price target (it's very possible Bitcoin could top out lower or even way higher than this). With Bitcoin currently trading around $13,000, this would be a clean 10x for Bitcoin (1,000% gain). Impressive no doubt and outperforming every traditional investing sector by far. 

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Over-Extended ETH/BTC Ratio. 

27e5efaeff3229da7f8ba1a0b81edfea78bb9cf4f6740459dfb31c544926374d.pngThe ETH/BTC ratio is near its historic all-time low, indicating BTC is heavily extended against ETH. Even if BTC and ETH were to rise equally, given the fact ETH is so undervalued against BTC and has only recovered a fraction of its all-time high vs BTC, ETH has that much more space, price history, and ETH/BTC spread left to 'catch up' relative to BTC (as it does). Bitcoin has already recovered 65% of 2017 high, whereas Ethereum has only recovered ~30% at the time of this writing. If all else is equal, in a race to get back to previous ATH's, Bitcoin wouldn't even 2x to return to $20,000, whereas ETH would have to 3.5x to reach $1,400 again. Not to mention Ethereum is a significantly lower-cost asset than BTC which should make it a more attractive purchase than BTC to new Crypto investors. This gives ETH a huge advantage right off the bat, and doesn't take into account potential fundamental tailwinds such as ETH 2.0's gradual launch starting in Q4 2020 and completion over the next 2-3 years.

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ETH/BTC Price Target?

ETH has only been around since 2016 so there is less data available, unfortunately, however, based on the 4 Year ETH/BTC Weekly chart above, you can observe how 0.01 ETH/BTC has been a significant level both technically and psychologically. This occurred at the tail end of Bitcoin bull runs as BTC Dominance peaked and Altcoins started to gain in Satoshis against BTC, AKA "Altseason." It is during this time that ETH shines, which explains why in the last crypto bull market Bitcoin peaked in December 2017. This is supported by the Bitcoin Market Cap Dominance Chart below, which shows Bitcoin making up over 70% of the total Crypto market cap in November-December 2017, but fell dramatically in late December-January as Altcoins (like Ethereum) gained in value against BTC, increasing their prices in both BTC and USD pairings.

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So, if Bitcoin can reach the $130,000 level as we hypothesized above based on an average of logarithmic charts, then 0.01 ETH/BTC would put Ethereum at $13,000.Now, that assumes Ethereum hits this ratio while Bitcoin is at $130,000 (or higher), which might be less likely during a transition from Bitcoin Dominance to Altseason (perhaps Bitcoin falls to $100,000). Even so, then a 0.01 ETH/BTC gives us $10,000 per ETH. Based on Ethereum currently trading at $400 at the time of this article, this works out to a 25x, or 2,500% gain.

 

Conclusion.

According to this model and hypothetical assumptions, Ethereum will outperform Bitcoin by a 1,500% difference.

Obviously, this is speculative and highly subjective to Bitcoin's performance, the ETH/BTC ratio reverting to the mean, and no catastrophic developments hindering either assets during this time. However, if there's one thing Bitcoin, Ethereum, and crypto as a whole has shown us before, is to never underestimate what could happen. 

 

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Crypto Daily FX
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