Ether (ETH) has a good chance of exceeding bitcoin (BTC) in market cap over the next 12 months because the Ethereum blockchain’s switch to a proof-of-stake (PoS) mechanism will reduce both the production of the tokens and selling pressure from miners, research firm FSInsight said in a recent report.
Once the transition, known as the Merge, is completed, the “inflation rate of supply will decline” and selling pressure from miners will be “locked at zero,” the research firm said. Bitcoin has a market cap of about $461 billion, CoinDesk data shows, compared with Ethereum's $226 billion.
There are widespread misconceptions that PoS validation will allow Ethereum to scale better. However, this is false because the blockchain will still be relatively expensive at the base layer, the report said. The main purpose is to reduce energy consumption by 99.9% and to allow more users to contribute to block production, Sean Farell, head of digital asset strategy at FSInsight, wrote in the report. The switch from proof-of-work (PoW) is the first of five planned upgrades for the blockchain, and is provisionally expected to happen in September.
FSInsight said that while it is likely there will be some secondary market selling pressure from investors looking to reduce their risk exposure after the completion of the Merge, as the network settles “flow imbalances from a deflationary supply have the potential to be incredibly constructive for price.”
“Merge-adjacent” names, which include Lido's LDO token, Rocket Pool's RPL, Optimism's OP and Polygon's MATIC are attractive opportunities for “high-beta” exposure to the process, the note added.