Ethereum, having long played second fiddle to the number one cryptocurrency, bitcoin, is stepping into the limelight.
The ethereum price, climbing more than 10% over the last 24-hour trading period and adding to gains of all almost 300% so far this year, remains far behind the bitcoin price—but price isn’t everything, with the number of bitcoin tokens “wrapped” into ethereum doubling in August.
Bitcoin can be wrapped onto the ethereum blockchain using a number of ethereum-based tokens, such as WBTC, which has surged in popularity since May, according to data from Dune Analytics. During some periods in August, more bitcoin was wrapped onto ethereum than was created by bitcoin miners.
Bitcoin wrapped onto the ethereum blockchain using WBTC is backed 1:1 by bitcoin and minted by locking up bitcoin on the bitcoin blockchain. It’s thought that by wrapping bitcoin onto ethereum and making it compatible with smart contracts, users will be able to unlock tools such as lending, liquidity provision, and decentralized exchanges.
“This presents an interesting quandary for bitcoin. While it clearly has more utility after being converted onto the ethereum blockchain, its underlying value ostensibly comes from the 68 terawatt-hours of power that go into securing the bitcoin blockchain each year,” Glassnode analysts wrote in their weekly newsletter.
“How much bitcoin has to migrate onto ethereum before the necessity of the bitcoin blockchain itself starts coming into question,” Glassnode asks. “And, if this were to occur, what would back the value of bitcoin if not the massive amounts of energy that go into maintaining its existence?”
Meanwhile, the ethereum price is soaring, boosted by the decentralized finance (DeFi) craze that’s currently sweeping the bitcoin and crypto world. DeFi is the idea that cryptocurrency technology can be used to recreate traditional financial instruments such as loans and insurance.
“Following a challenging number of weeks for many crypto-assets, ethereum’s price increase shows it is one of the main alts leading the market,” Simon Peters, bitcoin and crypto analyst at investment platform eToro, said via email.
“I agree with Glassnote’s reports that bitcoin is no longer investors’ first steps into crypto—many new investors may be entering the market directly into ethereum or DeFi protocols, rather than choosing bitcoin as their first or only crypto investment as they did in the 2017 crypto bull run.”