Is the “Flippenning” Upon Us? Here’s what you need to know.

07 Sep, 2021
Is the “Flippenning” Upon Us?  Here’s what you need to know.

The hypothetical theory has been there for years – someday, Ethereum would overtake Bitcoin in market share and become the number one digital currency. It’s called “The Flippening” and in recent months, speculation has mounted that the moment will come sooner than later. What’s driving analysts to this conclusion, and what does it mean for retail traders?

To understand the impact of a potential Flippening, let’s look at the basics.

Bitcoin (BTC) is the world’s first digital currency that launched in 2008 from the now famous whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” written by Satoshi Nakomoto.  The paper detailed a model in which the digital currency could be exchanged using a decentralized network of computers, without the need for a third-party to facilitate the transaction.

Once the network launched and the first Bitcoin was mined in 2009, believers quickly turned the digital coin into a store of value, which is how most traders and investors see it today.

Enter Ethereum:  the workhorse of the digital currency world.

In 2013, another digital coin was launched, one that was much different than Bitcoin.  Developed by Vitalik Buterin, the Ethereum network bills itself as a “programmable blockchain” which allows users to develop Dapps or Decentralized Applications.  The network’s native coin Ether (ETH) is used to power programming.

Ethereum is quick to point out its differences from Bitcoin.

“Both let you use digital money without payment providers or banks,” its website states.  “But Ethereum is programmable, so you can also use it for lots of different digital assets – even Bitcoin!

“This also means Ethereum is for more than payments. It's a marketplace of financial services, games and apps that can't steal your data or censor you.”

What they do currently have in common is their “Proof of Work” protocol for mining coins.

Currently, both coins use Proof of Work (PoW) as the protocol for mining coins, in which many miners compete to solve a computational puzzle that validates transactions on the network.  PoW has come under criticism in the past year for its large energy consumption.  Ethereum is planning to move to the more energy-conscious “Proof of Stake” (PoS) protocol, in which just one miner is randomly selected to complete the validation on the network.  This much-anticipated change is expected to occur later this year.

Bitcoin’s market dominance isn’t what it used to be.

Since the crypto market opened, traders and investors have used market dominance as the major predictor of a coin’s success. Bitcoin has enjoyed years of market dominance.  But as new coins are gaining traction and Ethereum makes changes to its platform, the numbers have changed. Bitcoin started this year with a market dominance of almost 70 percent compared to Ethereum’s almost 13 percent, according to Coin Market Cap. Today, it’s 42 percent and nearly 20 percent respectively.

Let’s not forget that these major shifts also briefly occurred in 2017 and 2018. But this time, investors and analysts see it differently.

"It's a pretty clear indication that institutions are starting to look beyond Bitcoin to ways the industry might evolve finance going forward," Chris Zuehlke, head of crypto asset trading company Cumberland recently told CNN’s Squawk Box.

In a widely cited Goldman Sachs report, Michael Novogratz, CEO of Galaxy Digital Holdings Ltd, specifically called out Ethereum, not Bitcoin, as the potential gamechanger in the crypto market.

“The three biggest moves in the crypto ecosystem—payments, DeFi, and NFTs—are mostly being built on Ethereum, so it’s going to get priced like a network,” he said. “The more people that use it, the more stuff that gets built on it, and the higher the price will ultimately go.”

Goldman Sachs economist Jeff Currie agrees. “A blockchain platform like Ethereum could potentially become a large market for vendors of trusted information, like Amazon is for consumer goods today,” he said.

If both coins have a niche, does it matter if they flip?

The cryptocurrency market is known for being volatile, creative, and ever changing.  So all this speculation about the Flippening could easily change.  Bitcoin has star power behind it, as Twitter/Square CEO Jack Dorsey has recently announced it would be building applications on its blockchain.  Tesla CEO Elon Musk continues to show support, despite his remarks about crypto’s energy guzzling process. And let’s not forget, Bitcoin is the star brand in the crypto universe.

Ethereum, may not have the sizzle of Bitcoin. After all, it’s the Avis to Hertz.  But it’s moving in a different direction, especially since the “London Hard Fork” upgraded the network. And, migration to Proof of Stake should help solve the current congestion on the network, high “gas” fees, and energy consumption.

If the Flippening does occur, it’s impact on the crypto market remains to be seen.

Joyce Pavia Hanson