Which one has higher investment value, Bitcoin or Ethereum?

Twilight Theory

Those who are new to crypto, such as institutional investors who recently bought into Bitcoin’s “digital gold” narrative, may now be looking around for the next big thing.

With the long-awaited Ethereum 2.0 upgrade coming on Dec. 1, it could be the network’s native token, ether. But analysts say ether should be judged on its own merits, not as an alternative to bitcoin.

“I’ve always thought that this digital asset space is huge, and it’s not just bitcoin — because different things are going to have different applications,” Raoul Pal, co-founder and CEO of financial media group Real Vision, said in Real Vision’s documentary “The Museum of Ethereum — An Investigation,” out Nov. 30. “I think the combined asset allocation of the two (bitcoin and ether) is very good.”

To Pal, an early Bitcoin investor, that theory seems to make even more sense today: With Bitcoin prices hitting all-time highs, the No. 1 cryptocurrency by market cap is now more expensive and therefore potentially a riskier bet for new investors.

It can be expected that investors are looking for a new opportunity in reasonably priced crypto. Given that Ether is trading about 59% below its all-time high of $1,432.88, it is easy to believe that there will be bargains. In addition, the Ethereum 2.0 upgrade to improve the network's scalability, security, and energy efficiency has generated a lot of hype.

Yet, at least so far, analysts and traders CoinDesk has spoken to don’t expect ether to displace FOMO on bitcoin.

“For institutional investors, they’re buying BTC for the digital gold narrative,” Ryan Watkins, senior research analyst at Messerli, told CoinDesk. “ETH just isn’t in that conversation yet.”

Ether “benefits from spillover, and there could be more conversations from crypto natives,” said Vishal Shah, founder of derivatives exchange Alpha5. “For the layman, [it’s] hard to understand why Bitcoin isn’t the only on-ramp.”

Bitcoin and Ethereum’s correlation weakens

Some analysts say ether and other cryptocurrencies will gradually decouple from bitcoin as more institutions pour money into it and push up its price.

In fact, while Bitcoin hit a new all-time high this week, Ethereum didn’t even come close to its all-time high of $1,448.18. Data shows that the 90-day correlation coefficient between the prices of the top two cryptocurrencies, while still strong, has gradually weakened since the summer from as high as 0.93 to nearly 0.7 in early December.

“The problem with correlation is it can go away at any time,” said Ashwath Balakrishnan, a research analyst at digital asset research firm Delphi Digital. “In this case, you want to understand the core fundamentals of what you’re holding, because if you’re holding ether as a proxy for (your) bitcoin exposure and (when) the price decouples, you’re now dealing with something very different.”

Bitcoin has been used by many investors this year as a hedge against the decline in the purchasing power of the U.S. dollar. Ether is considered the currency of a "world computer" that aims to build an ecosystem of decentralized applications, Balakrishnan said.

The close historical correlation between Bitcoin and other cryptocurrencies may be due to how tiny the digital asset ecosystem is relative to the global economy. The estimated total market capitalization of crypto assets at $562 billion represents just 1.7% of the $32.2 trillion total market capitalization of the S&P 500 stock index. Nearly every crypto asset is built on a different foundation, and non-Bitcoin cryptocurrencies may rise in tandem with Bitcoin’s price simply because this nascent market is still so small and isolated.

Correlational data doesn’t tell the whole story. Prices may move in sync, but the extent of the movement is another matter. When the explosive decentralized finance (DeFi) craze hit the market over the summer, the price of ether rebounded to its highest level in more than two years because most DeFi projects are built on the blockchain’s Ethereum. At the time, bitcoin was struggling to break a similar two-year record.

What Ethereum 2.0 means for investors

The market will have to wait and see what real impact the ongoing Ethereum upgrade will have on its native currency, as the final stages of the process are expected to be completed in 2023. But a major fundamental upgrade to the network that underpins Ethereum could cause its price to move in line with its own fundamentals, rather than just following Bitcoin’s.

“At the heart of Ethereum 2.0 is Ether, which makes the entire system possible,” according to a report from Messerli. “Ether is not only Ethereum’s native store of value asset and transaction fuel, but will also be the ultimate source of security for Ethereum in the (proof of stake) system.”

So while Bitcoin can be viewed as somewhere between a store of value and a commodity on the “asset superclass triangle,” it may ultimately be the first asset to combine all three categories: capital asset, commodity, and store of value.

“When the price of ether starts being driven by its own catalysts, using it to represent exposure in BTC will not work as expected,” Balakrishnan added.

Twilight Analysis

BTC: BTC is still fluctuating at a high level today, and the short-term direction is unclear. Here is an analysis of the possible trend of the mid-line this month. Let's enter the 3-day medium- and long-term chart of BTC. Twilight has added the Gaussian channel to this chart. I feel that the Gaussian channel is not very useful in the normal market, but it is a tool that can be used in the unilateral market. After the trend appears, Twilight predicts that it may retrace the top of the Gaussian channel. Referring to the history of BTC, before the bull market was formed, Twilight had countless retracements of the Gaussian channel before the main rising wave was formed. The Gaussian channel should be similar to the previous high of 14,000. Twilight also has a potential blue rising channel. At present, the upper edge of the channel has been tested many times at the top, so Twilight still thinks that there is a great possibility of a callback. At least before the new high is safely broken and stepped on, Twilight will maintain his rationality. I hope you can also make rational judgments. Finally, one thing to confirm is that we are still in a big bull market. Shorting should be cautious. It is recommended to make money.

ETH: With Grayscale's large-scale purchases, the continuation of Ethereum 2.0 deposits, and the recent continued efforts of Defi, Ethereum has once again become a strong mainstream currency. Like Bitcoin today, it is strongly hovering at a high level, so it will continue to move in tandem with Bitcoin.

ADA: Break through 0.17 and participate again

LINK: Defi is under constant attack, so the oracle is more important. The market has support

BCH: Don’t consider it for now

LTC: Grayscale support, you can pay more attention

DOT: It is fluctuating higher in the locked-in area and is expected to hit a new rebound high later.

XRP: Don’t participate yet. If the volume is released to everyone, a new round of rise will come. The key point is 0.67.