Investment banking goliath Goldman Sachs says that Ethereum (ETH) will likely beat Bitcoin (BTC) as a store of value.
Excerpts from the bank’s research paper shared by Santiago Roel Santos, general partner at blockchain-focused investment firm ParaFi Capital, highlights Ethereum’s fundamental advantages over Bitcoin.
“Given the importance of real uses in determining store of value, [Ethereum] has a high chance of overtaking Bitcoin as the dominant digital store of value. The Ethereum ecosystem supports smart contracts and provides developers a new way to create new applications on its platform. Most decentralized finance (DeFi) applications are being built on the Ethereum network, and most non-fungible tokens (NFTs) issues today are purchased using Ether. The greater number of transactions in Ether versus Bitcoin reflects this dominance.
As cryptocurrency use in DeFi and NFTs become more widespread, [Ethereum] will build its own first-mover advantage in applied crypto technology.”
Goldman Sachs also says that Bitcoin’s provable scarcity does not guarantee its dominance as a store-of-value asset.
“A major argument in favor of bitcoin as a store of value is its limited supply. But demand, not scarcity, drives the success of stores of value… In fact, a fixed and limited supply risks driving up price volatility by incentivizing hoarding, potentially creating financial bubbles.”
Goldman Sachs’ bullish take on Ethereum comes as the banking giant recognizes crypto as a new asset class.
“[Goldman Sachs] commodity analyst Mikhail Sprogis and Jeff Currie, global head of commodities research, for their part, argue that cryptos can act as stores of value, but only if they have other real-world uses that create value and temper price volatility. This, they say, best positions cryptos whose blockchains offer the greatest potential for such uses, like ether, to become the dominant digital store of value. More broadly, Currie contends that cryptos are a new class of asset that derive their value from the information being verified and the size and growth of their networks.”
An analyst from the bank also shines the spotlight on Bitcoin, emphasizing its strong performance in the last seven years.
“A small allocation to Bitcoin in a standard US 60/40 portfolio since 2014 would’ve led to strong outperformance, owing both to higher risk-adjusted returns for Bitcoin compared to the S&P 500 and US 10-year bonds, as well as diversification benefits from relatively low correlations between Bitcoin and other assets.”
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