2023 Theses - Part 1

This report lays out a series of predictions about how 2023 could play out. Our team of analysts independently theorized each topic, so the views of one analyst may differ from another. This is not financial advice but rather a look into how our team views the current crypto landscape. Part 1 features predictions on  L1s, L2s, and infrastructure, while Part 2 will cover our theses at the dApp layer.

Ethereum Flips Bitcoin

Dan Smith

Bitcoin was the first functional public blockchain and proved that cryptocurrencies were more than just theory. The asset is often praised for its properties as hard money, which is an attractive value proposition at a time when expansionary monetary policies are the norm across global central banks. Bitcoin has also seen increasing adoption, with 23 public companies collectively holding $2.9B of BTC. El Salvador also accumulated $41.6M of BTC and declared the asset as legal tender. Holders believe it is the best way to transport value through time and can eventually become the global reserve currency.

However, Bitcoin is incompatible with smart contracts, so the bulk of blockchain development and innovation is happening elsewhere. Ethereum has dominated the activity in DeFi, stablecoins, and NFTs, each of which have become multi-billion dollar industries. The network currently has $23.5B in DeFi TVL and $85.0B in stablecoins. In 2022, it facilitated over $1.2T of DEX spot volume and $52.6B of NFT volume. While Bitcoin aims to become the world's best form of money, Ethereum aims to become the infrastructure of a global digital economy. The total addressable market of both visions is enormous, so the better comparison is the likelihood that either network gains market share in its respective sector.

Ethereum will flip Bitcoin before the end of the next cycle. Bitcoin and Ethereum are currently the largest cryptocurrencies, with respective market caps of $323.9B and $151.0B. Looking at the ETH/BTC market cap ratio, Ethereum needs to roughly double the performance of Bitcoin to complete “the flippening.” I anticipate dilutive sell pressure from Bitcoin miners pushes the ETH/BTC ratio higher throughout 2023. While we saw the opposite scenario in the 2018-2019 bear market, Ethereum's significantly improved fundamentals following the transition to Proof of Stake will drive the overtake.