Fed And ECB ‘Kryptonite’ Could Break Bitcoin Despite Massive Price Surge—But Here’s Why Ethereum Could Triumph


Bitcoin is up nearly 1,000% in the past 12 months – a rally that was surpassed by the second largest cryptocurrency, Ethereum.

Bitcoin price has soared from under $ 10,000 around that time last year to around $ 60,000 per bitcoin, while Ethereum is up 1,200%, rising from just over $ 100 per ether token to nearly $ 2,000.

Despite Bitcoin’s recent success, some fear that central bank digital currencies (CBDCs) could be “kryptonite” for Bitcoin and similar cryptocurrencies – while Ethereum apps and upgrades help keep it ahead.

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“Bitcoin is the most talked about cryptocurrency, but Ethereum offers more features, including more flexibility,” Bank of America analysts wrote this week in a report titled Bitcoin’s Dirty Little Secrets.

“Bitcoin is also correlated to risk-weighted assets, it is not tied to inflation and remains exceptionally volatile, making it impractical as a wealth or payment mechanism,” the researchers wrote, adding that there is no good reason to own bitcoin unless you see prices go up. “

The report continued to refer to CBDCs as “kryptonite for crypto,” but the rise of decentralized finance (DeFi), which aims to replace the role of banks with blockchain-based protocols largely based on Ethereum’s blockchain, is “intriguing” .

The European Central Bank (ECB) is currently considering creating a digital euro, while Federal Reserve Chairman Jerome Powell said 2021 will be a pivotal year for public consultation on a future digital dollar.

DeFi is “potentially more disruptive than Bitcoin,” according to analysts at Bank of America, who found DeFi’s growth “shows the strength of Ethereum; its computational ability is critical to DeFi applications.”

With many of the largest DeFi projects built on Ethereum’s blockchain, an influx of users over the past year has driven the price of Ethereum up as users flood the network.

Ryan Watkins, an analyst at cryptocurrency research firm Messari, said this week he thinks Ethereum could outperform Bitcoin – if not in price, then in network security.

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“I think the move to Ethereum 2.0 and Proof-of-Stake [means] Ethereum may be more secure than Bitcoin, “Watkins said in an interview with Fintech Today.

Bitcoin’s proof-of-work algorithm, in which so-called miners have to solve complex calculations in order to unlock new Bitcoin and secure the network, was criticized as being too energy-intensive. Some believe that proof-of-stake algorithms, which holders of a cryptocurrency can use to help secure a blockchain, could improve this, but it is not yet known whether proof-of-stake algorithms can be scaled sufficiently.

As part of a move to Ethereum 2.0 that began late last year, an update in July will destroy (or “burn”) some Ether tokens, with users sending a fee to the network itself instead of the miners who maintain the network .

“The way Ethereum becomes money is not for countries to adopt it as currency. The way Ethereum becomes money is to build its own economy,” added Watkins and pointed out the growing DeFi space.