Bitcoin has been the leading crypto asset by market capitalization since the inception of crypto. It is also currently the largest by market cap, and price per unit, which is much larger than Ethereum, the second largest.
However, an analyst, André Dragosch expects Ethereum to outperform Bitcoin in the year 2024. He stated that this performance will be driven by Ethereum’s technological advancements and Ethereum’s position as a leading smart contract platform.
“Ether underperformed bitcoin over the past 12 months, however, ether could outperform bitcoin over the coming 12 months,” Dragosch told The Block.
Ethereum is the leader in smart contract development indeed. Despite challenges such as its lack of scalability which has resulted in high transaction fees, the platform still manages to lead in this regard because of its technological structure.
Dragosch who is also the head researcher at ETC Group is optimistic that such technology as Ethereum has and its viability in the smart contract space makes it a formidable force in the coming year.
He also listed some factors which he believes will contribute to the price gains of Ethereum in 2024. These include Ethereum’s deflationary mechanism and staking yields.
Drivers of Price Gains
In a previous report, Dragosch said that Ethereum’s deflationary mechanism could be a major driver of price gain. This works with the Ethereum burn mechanism introduced with Ethereum improvement proposal EIP-1559 in August 2021.
It is a strategy to reduce the amount of ETH in circulation by regularly burning some of the tokens. This is an effective way to induce scarcity of the token amidst increasing demand which is likely to cause an increase in price.
He added that this reduction in circulating supply combined with the attraction of ETH staking yields, could push Ethereum ahead of Bitcoin.
“Ether’s net supply issuance amounts to minus 1.1% per annum, as approximately 1.84% per annum are currently being burnt. Traditional investors can think of the staking yield as some kind of equity dividend, while the burn rate can be considered as an equity buyback yield,” he said.
Dragosch further maintained that Ethereum has been ahead of Bitcoin consistently since its creation in 2015, except in 2023, something that the asset will correct in 2024 and take back its leading place.
This process known as mean reversion has also been confirmed by COinbase’s Crypto Market Outlook report which states that “We think ether’s relative discount could be the precursor to some mean reversion in 2024.”
JP Morgan Confirms
Dragosch isn’t the only one who thinks Ethereum may be getting set to beat Bitcoin in the coming year. JP Morgan analysts earlier this month predicted that Ethereum could do better than Bitcoin next year. Their reason however was different.
“We believe that next year Ethereum will re-assert itself and recapture market share within the crypto ecosystem,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note.
“The main catalyst is the EIP-4844 upgrade or Protodanksharding, which is expected to take place during the first half of 2024. We believe that this upgrade will likely prove a bigger step towards improving Ethereum network activity, thus helping Ethereum to outperform.”
The analysts also emphasized that the excessive optimism around Bitcoin could work against it, adding that top events like the halving were already priced in, leaving no more room for optimism on the asset.