Global Macro Investor CEO Raoul Pal has listed a number of reasons that Ethereum may well exceed Bitcoin in terms of market capitalization in the future. At the moment Ethereum’s market cap is just 18% of Bitcoin’s with $62 billion compared to $334 billion.
In a flurry of tweets today, the investment strategist and economic historian compared the sizes of cryptocurrencies to traditional financial markets such as bonds and derivatives. The stand-out comments were all very bullish for Ethereum which may have an entire financial economy running on it in the future.
“My hunch is BTC is a perfect collateral layer but ETH might be bigger in market cap terms in 10 years for the reasons above.”
Bitcoin, which is currently correcting, has traditionally been considered as a store of value rather than digital money or a financial application layer. Sending and receiving Bitcoin is relatively slow and markets are still way too volatile for it to be considered as ‘money’.
Ethereum prices are also volatile and it too can suffer greatly when the network is under heavy load. The difference is that many other assets from stablecoins to real estate to non-fungible gaming tokens can be tokenized on Ethereum. It is a foundation layer for an entirely new financial landscape.
Pal kicked off the thread stating that if Bitcoin is the digital pristine collateral, the size of global government bond market is $123 trillion, and it could be a “pretty amazing opportunity for Bitcoin”.
He then compared crypto markets to current settlements, derivatives, and forex layers in traditional finance which are in the quadrillions of dollars.
“Almost no one in crypto understands the size of financial markets. It is never ever going to be winner takes all. It is near impossible as each blockchain has its limitations and trade offs and that suits the complexity of the financial world.”
He added that money and collateral is just the base layer, and everything builds on top. The store of value is collateral, the trust layer and exchange of value is bigger, and this is Ethereum he stated.
Decentralized finance has been the primary case in 2020 as the majority of it is built on Ethereum despite the emergence of a number of faster rival blockchains such as Polkadot, Solana, and Binance Smart Chain.
None of them have managed to ‘kill’ Ethereum and they are unlikely to in the future unless developers in the current DeFi ecosystem want to re-write all of their code and contracts for another platform with fewer users.
As DeFi grows, so will its reliance on Ethereum, which is also evolving itself and is already scalable through Layer 2. Native scaling is around a year or so away, and by then Ethereum would have cemented itself even further as the base layer of this new financial world.