As the two largest cryptoassets by market capitalization — bitcoin (BTC) and ethereum (ETH) (plus several thousand other coins) — are competing for new money in a crypto beauty contest, the resurfaced question whether ETH is money once again added fuel to the fire.
While the traditional financial world does not consider BTC to be money, many BTC fans are of the same opinion about ETH.
The debate surrounding ETH and its use case as money has been thrust into the spotlight once again, thanks to Ryan Selkis, founder of US-based major crypto researcher Messari. Selkis published a mega-report entitled Crypto Thesis for 2021, which has a whole section called “ETH Isn’t Money.” While some hardcore Ethereans were quick to react to this statement, even some members of Messari’s own team do not agree with their boss.
In either case, Selkis argued that:
- BTC has few substitutes, ETH may have many;
- ETH failed to keep its reserve currency status during the ICO boom in 2017 and the DeFi (decentralized finance) boom this year;
- «Smart money» demand for ETH is overstated, and as a macro hedge, ETH doesn’t come up in conversation. Also, as an uncorrelated asset, ETH is relegated to the bench due to its correlation with BTC;
- ETH, as the asset, is tough to grasp because the narrative keeps changing and there are three concurrent radical investment theses at once;
- ETH doesn’t gain ground in the wrapped assets sector also, as interest in wrapping synthetic BTC (and other assets) and leveraging them on the Ethereum blockchain is also growing;
- It’s unclear whether ETH 1.0 or ETH 2.0 will be the blockchain of record next year;
- The core ETH 2.0 blockchain might lose some of its value due to how Ethereum is moving to its second version via «ETH 1.5 with rollups»;
- DeFi applications will capture more fees (proportionately) over time than base layer protocols;
- The clincher is that you don’t even need to agree with the threats above, just that the perceived threats exist to eventually hurt ETH’s monetary premium.
However, the CEO stressed that ETH “will likely prove to be a terrific investment anyway.”
“A commodity that secures transactions on the world’s most valuable computing platform (gas for throttling, staking for processing), and that can be ubiquitously leveraged as collateral within a burgeoning new financial system, is plenty valuable. I love ETH, and I own a bunch,” he said.
Also, Selkis pointed to Ryan Watkins and Wilson Withiam, senior research analysts at Messari, who “just wrote a BIBLE on Ethereum 2.0” and they “disagree” with his own report’s section on ETH “pretty much point for point.”
Among their arguments, the analysts made the case that on the proof-of-work (PoW) chain, “ETH possesses store-of-value and commodity properties from its use as money and gas.” They maintain that ETH “will also possess capital asset properties from its use in [proof-of-stake].” They argue:
“ETH 2.0 will not only transform Ethereum the blockchain, it will also transform ETH the asset. The introduction of staking will make ETH a significantly more productive asset than it was under PoW, providing ETH with native yield generating opportunities in addition to its current use as gas and money on Ethereum.”
According to them, this combination will provide ETH with an unprecedented combination of attributes from each of the three asset superclasses: capital assets, commodities, and stores of value, respectively.
“And it may also create a constant tug of war for ETH demanded by each use case,” they said.
Ethereum strikes back
Meanwhile, the debate moved into the Bankless podcast this week, hosted by ETH supporters Ryan Sean Adams and David Hoffman.
For their part, the Bankless duo was prepared to defend ETH on each and every one of Selkis’ points. According to Adams, ether is a full market cycle behind bitcoin. He fielded Selkis’ argument on bitcoin as a dominant player with no rivals vs. Ethereum’s many competitors, saying that the case is “much overstated.”
While there are many “ETH killers” who say that they are competitors to ETH, to Selkis’ point on “marketing and centralized war chests,” Adams said, “it’s that centralization that makes them weak competitors to Ethereum.”
What ether has going for it is “credible neutrality,” Adams argued, pointing out that it wasn’t funded by venture capitalists or reserved for accredited investors.
“It’s already crossed the gauntlet to become a decentralized network. Even the US Commodity Futures Trading Commission said the two cryptoassets that are commodities are bitcoin and ether,” said Adams.
Instead, no matter how it looks at a high level, what’s really going on is that these so-called ETH killers, the other smart contract platforms, are competing with one another and Ethereum’s layer two but not ether as an asset for money, claimed Adams.
Bitcoin got caught up in the crossfire, and Bankless’ Ryan Sean Adams argued that the biggest cryptocurrency is only good for holding and maybe transacting, though as more whales and institutions are using it, then the fees are going to make transactions nonsensical.
Ethereum, on the other hand, “has so much more surface area,” Adams argued, saying you can hold and transact in addition to having an “economy of stablecoins” and a “trading economy built upon Uniswap,” not to mention non-fungible tokens.
“There are all of these different vectors for people to enter that bitcoin simply doesn’t have,” he said, adding that the one thing bitcoin has is a better meme as digital gold.
Who’s the winner?
Meanwhile, Selkis also argued in the podcast that bitcoin isn’t money either, saying that neither of them are money in the traditional sense. But apparently, bitcoin is more money-like than ether.
“Every token can be money. Every stock can be money, right, if you just loosen the definition enough…We’re really talking about, which is the ultimate and best form of digital money. Is it bitcoin? Is it ethereum? Is there any chance that ethereum is going to flippen bitcoin for that use case? And the answer is definitively no. Not any time soon. And if it does, there’s something very systemically wrong, I think, in the industry,” Selkis said, adding that for the money narrative, it’s a “winner takes most market.”
At the time of writing (15:05 UTC), ETH trades at USD 662 and is up by 7% in a day and 19% in a week. The price rallied by 41% in a month and 434% in a year. At the same time, BTC is at USD 23,083, or 12% higher than a day ago and 27% higher than last week. It jumped by 35% in a month and 241% in a year.