Stablecoins Expected to Fuel ‘Divergence’ Between Bitcoin and Ethereum – Learn Why

Financial services giant Fidelity has released a report predicting that the increasing use of stablecoins could lead to a widening gap between the top two cryptocurrencies by market capitalization. According to Fidelity, the growing adoption of stablecoins on the Ethereum network is expected to drive a wedge between Ethereum (ETH) and its competitors in the layer-1 blockchain space, as well as with Bitcoin (BTC).

The report highlights the likelihood of Bitcoin and Ethereum continuing to evolve in different technological directions, creating more distinct use cases and enhancing portfolio diversification opportunities. One specific example cited is the surge of stablecoins on the Ethereum platform, which has already demonstrated Ethereum’s enhanced utility within this domain.

Fidelity emphasizes a key disparity between the two networks, noting that Ethereum is predominantly utilized for asset transfers, while Bitcoin is primarily held as a long-term investment. In comparison to other platforms supporting smart contracts, Fidelity asserts that Ethereum currently holds a substantial advantage.

Data presented in the report indicates that significant amounts were transferred in Bitcoin, Ether, and Ethereum layer-1 stablecoins in 2023, with Ethereum leading in this aspect. This data reinforces Bitcoin’s role as a store of value, highlighting investors’ inclination to hold Bitcoin long-term based on its perceived ability to hedge against currency devaluation. The report suggests that Bitcoin and Ether can offer complementary benefits within a portfolio by catering to distinct utilities and target markets.

Furthermore, Fidelity underscores the entrenched network effects of Ethereum as a critical factor that could impede the progress of other smart contract platforms in catching up. As of the time of reporting, Ethereum is trading at $2,332, while Bitcoin is valued at $57,075.

It is evident from Fidelity’s analysis that the rise of stablecoins on Ethereum is reshaping the crypto landscape, potentially leading to a deeper divide between the functionalities and investment propositions of Bitcoin and Ethereum. This trend underscores the dynamic nature of the cryptocurrency market and the evolving roles of different digital assets within investment portfolios.