While each currency has its own competing qualities, analysts at financial services firm JP Morgan have asserted that investors would be better off holding Ethereum rather than Bitcoin at a time when interest rates are on the rise.
In a recently released report, a team of JPMorgan analysts, led by market strategist Nikolaos Panigirtzoglou, noted that the higher interest rates could prove to be detrimental to the “digital gold” Bitcoin, just as they do for traditional gold. However, since the Ethereum blockchain is the power hub of DeFi and NFTs, its far wider use cases could continue to generate interest in its native token.
Last year’s lockdown induced economic slowdown had resulted in unbelievably low-interest rates and bond investments, leading to a surge in cash flow and inflation. Bitcoin had flourished in this scenario due to its perception of being a hedge against inflation. However, now that central banks are stepping away from providing this increased stimulus in an effort to curb strong inflation, interest rates and bond yields might once again see an uptick.
Panigirtzoglou noted in the report,
“The rise in bond yields and the eventual normalization of monetary policy is putting downward pressure on bitcoin as a form of digital gold, the same way higher real yields have been putting downward pressure on traditional gold.”
PoW vs PoS
On the other hand, Ethereum has been the main driving force behind a boom in decentralized financial activities and NFT trading, leading to the assumption that larger market forces might not be able to affect its token price too much. The report said,
“With Ethereum deriving its value from its applications, ranging from DeFi to gaming to NFTs and stablecoins, it appears less susceptible than bitcoin to higher real yields.”
Another factor that works in the blockchain’s favor is its shift to more environmentally friendly technology, according to the report. Bitcoin has been increasingly riled over the past year for using the energy extensive Proof-of-Work algorithm for minting new tokens.
Ethereum, however, is already under the process of completely shifting to the Proof-of-Stake mechanism by the end of next year, making its validation and security system far more energy-efficient and a preferable choice for investors, according to the JP Morgan report, which stated,
“The greater focus by investors on [environmental, social and governance investing] has shifted attention away from the energy-intensive bitcoin blockchain to the Ethereum blockchain.”
Although, the overall conclusion of the report noted that both currencies were currently overvalued and not a preferable choice for institutional investors due to their high volatility.
A recent report by Kraken had the opposite to say, however, as it noted that Bitcoin might still have a chance to achieve higher highs before the cycle ended. Contrastingly, Ethereum’s strong performance might be ending as it faces stiff competition from the likes of Cardano and Solana, leading to a fall in market dominance.