Why Ethereum Will Likely Outperform Bitcoin in 2022

Mark Hake

Ethereum could outperform Bitcoin with its new proof-of-stake system

Bitcoin (BTC) has risen 76% year-to-date, according to Google Finance, and stood at $51,757 as of Dec. 27. But Ethereum (ETH) is up 461.6% in the same timeframe, based on Google Finance.

Moreover, there is good reason to believe that Ethereum will continue to outperform Bitcoin over the next year.

However, first, consider this. It’s not as though there won’t be resistance. Once a cryptocurrency starts to trade in a range it becomes difficult for traders to envision trading outside that range. As a result, the crypto trading price can remain in a range and “resistance” to moving out of that range builds up.

For example, one crypto-analyst quoted by The Daily Hodl, Pentoshi, who has 434,900 Twitter followers, recently said that Ethereum is stuck in a range.

He said that “the area between $4,400 and $4,500 is a critical level for the leading smart contract platform.” He didn’t say which smart contract platform he was referring to.

However, once the price moves over that it could push to a new all-time high. That is what it means to be stuck in a trading range. As of Dec. 27, Ethereum was trading at $4,082 per ETH crypto token.

Where Things Stand With Ethereum

Recently the Ethereum Foundation, which promotes the development of Ethereum and upgrades the blockchain, made a major announcement. According to Cryptoslate magazine, it said that the blockchain is starting to run a new testnet called Kintsugi.

This testnet is a set of blockchain protocols that facilitate Ethereum’s transition from a proof of work network to a proof of stake network. Over time Ethereum plans on moving to this type of method to validate transactions as opposed to Ether mining to validate transactions. This is known as Ethereum 2.0.

The advantage of Ethereum 2.0 is that it will promote faster, cheaper, and less energy-consuming transactions. And people certainly want Ethereum transactions to process faster and much cheaper.

This issue right now is how fast this new testnet will catch on. Developers and new apps need to be involved in the promotion of Ethereum 2.0 through this testnet protocol. Once there are enough developers, nodes, and apps using the new test, the mainnet Ethereum blockchain will “merge” on a single day. The problem is no one knows yet when this will happen.

The Cryptoslate article also points out that there is another benefit for the new testnet: It will allow users “to secure the network by locking ETH into the protocol, also known as staking. The staking will also enable users to earn additional crypto rewards by validating other transactions on the network.”

Where This Leaves Investors in ETH Crypto

As I wrote several weeks ago, there has been a huge debate in the market on the viability of Ethereum given how high its transaction or “gas” fees keep rising. One analyst even referred to it as an “existential crisis.”

Others, especially those who want to promote Ethereum, argue that this is simply the cost of doing business. In their minds, the higher gas fees reflect the popularity and success of Ethereum, according to a recent article in Decrypt magazine.

The article quotes a co-founder of Ethereum that the higher fees reflect the ongoing demand for Ethereum. It shows that given Ethereum’s uses with NFTs (non-fungible tokens), smart contracts and other Dapps (decentralized apps).

As a result, it’s possible that even with the introduction of Ethereum 2.0 with its proof of stake validation method, the demand for ETH crypto could rise. That will help its price rise substantially more than Bitcoin over the coming year.

But it could also mean that Ether transaction costs don’t fall from their high costs at present. That may be a trade-off that investors in Ethereum will have to live with – a higher price with higher transaction costs.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock, security, or crypto, as I am not undertaking to induce you to buy or sell securities.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

This represents my analysis of Ethereum (ETH) crypto and it is not meant to provide you with specific advice in your own situation. I do not own this crypto or related securities or options but I may buy them in the near future. Your own situation could be different and this is not a recommendation to purchase the crypto.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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