Ethereum Merge Complete: Is “The Flippening” Next?

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After the core development team behind Ethereum (ETH-USD) gave a window in mid-September for when the long-awaited switch from proof-of-work to proof-of-stake, “The Merge” has become the most big story of cryptography. ETH has had a massive bounce since the June 18 crypto low, rising to more than 100% by mid-August.

BTC vs. ETH performance

Looking for Alpha

But crypto has largely stagnated since. While Ethereum is still well ahead of the mid-June lows and has significantly outperformed Bitcoin (BTC-USD) over this period, the action since the merger has been less than stellar with ETH now down drastically. around 20% in the last 5 days. Turns out “The Merge” has been a rumored big buy, sell out news event so far. Of course, there is also a macro to blame here with warmer than expected CPI prints last week. Although the price of the token does not show it, the merger was a great success in many ways.

The success of “The Merge”

Ethereum’s merging of proof-of-work with proof-of-stake is significant. From a purely technological standpoint, it’s incredibly impressive that the development team was able to pull this off without any issues. And judging by the number of people who saw it live, it was one of the biggest events in crypto history. While I’m not trying to hide my personal philosophical issues with the perceived decentralization of Ethereum as a network, I think the success of The Merge has actually reduced the risk of ETH the currency a bit and given more credit to the cryptocurrency ecosystem as an investment idea.

If any of the staked values ​​were somehow compromised by the potential failure of The Merge, it would theoretically have been catastrophic for the network effect that Ethereum has used over the past few years. Much of this growth has involved DeFi. Despite the proliferation of blockchains that now have a DeFi footprint, the market still relies heavily on Ethereum for base-layer security:

DeFi Market TVL
Ethereum $30.3 billion
Polygon (MATIC-USD) $1.35 billion
Arbitration $932 million
Optimism (OP-USD) $836 million
Total market $52.7 billion
Ethereum footprint 63%

Source: DeFi Lama

Polygon, Arbitrum, and Optimism are all Ethereum Layer 2 solutions that use Ethereum’s network. And that doesn’t include the market caps of the tokens of the protocols that build those apps. Some of the major dexes, lending protocols, content projects, and derivative networks are all built on Ethereum and use ERC-20 tokens.

Ethereum survived a major turning point in the history of the network. And there’s a lot of value in the rest of the cryptocurrency market that’s probably a little safer than it was just a week ago. But as is often the case, we are already waiting impatiently for the sequel. Some of the focus of the Ethereum community has now shifted from “melting” to “flipping”.

What is Flippening?

The reversal is the theoretical moment when Ethereum overtakes Bitcoin as the number one cryptocurrency by market capitalization. At the time of writing, Bitcoin’s advantage is just over 2:1 on a non-fully diluted ratio.

Piece of money Market capitalization Fully Diluted Market Cap
Bitcoin $370 billion $405 billion
Ethereum $166 billion $166 billion

Source: CoinMarketCap

So how viable is flipping? Frankly, I think it’s possible for that to happen, although I don’t think we’ll see it for several years. What I think gives the flip idea some credence is the growth of on-chain wallet addresses for Ethereum. Although the market caps of each coin do not necessarily show it, the growth of Ethereum as a network has actually far exceeded that of Bitcoin if we judge only by the on-chain wallet addresses that have a non-zero balance. .

ETH versus BTC wallets


There are 86.4 million non-zero balance ETH wallets and 42.8 million non-zero BTC wallets. This shows a user-generated network effect that cannot be ignored and is largely explained by the amount of additional layers and applications that have been built on top of Ethereum. After all, ETH is still the gas needed for transactions that members of the ecosystem execute. Year-to-date, we have seen non-zero balance addresses increase by 16.9% for ETH but only 9.5% for BTC. Looking further ahead, the growth since the peak of the 2017 bull cycle has been staggering.

January 2018 8.5 27.7
January 1, 2022 72.2 39.1
Now 84.4 42.8
YTD 16.9% 9.5%
Since the last peak of the bull cycle 892.9% 54.5%

Source: CoinMetrics

Since the peak of the 2017 bull run in crypto, ETH’s non-zero balance growth has been nearly 900% while BTC’s non-zero growth has only increased by 54.5% over the course of 2017. of the same period. This has undoubtedly contributed to the adoption of Ethereum as a crypto ecosystem and helped close the market capitalization gap between the two coins. It’s not just non-zero balances where ETH has grown faster than BTC. While Bitcoin addresses with at least $100 are still just under double those of Ethereum, BTC’s multiple in this metric has fallen from 5.6 at the bear market bottom in December 2019 to less than 2 today. today.

BTC vs. ETH Addresses


In the chart above, we see ETH outperforming during bull markets and underperforming during bear markets. What is interesting during the current bear market is how well ETH has managed to keep the ratio below 2 despite falling coin prices. During the 2017 bull run, Bitcoin topped in December while Ethereum actually topped in January 2018. By late January and early February, the $100 BTC/ETH minimum address ratio had fallen to 2.3 . It took about a year for BTC’s multiple ratio to double from the February 2018 low. We’re back on track to see the same happen this time around, but from a point of starting much lower, indicating that Ethereum has strengthened as a cycle-to-cycle network against Bitcoin.

The market cap story is slightly different

Despite growing network addresses with non-zero balances and $100 lows, Ethereum’s market capitalization never really eclipsed its 2017 high against Bitcoin. In June 2017, ETH as a percentage of BTC market capitalization reached 83%. During this recent run, ETH never exceeded 55%.

ETH Flipping MC

While I think some might take this as evidence of Bitcoin’s future dominance, Ethereum’s market cap has actually held up quite well despite the tough bull run compositions of 2017. The previous bull was a bit different from the latter as BTC and ETH seemingly rallied in turns. We see the MC percentage of ETH to BTC MC rise to 83% in June 2017 before collapsing to 14% in December 2017. After the Bitcoin bubble burst in December, Ethereum’s market capitalization compared to Bitcoin’s market capitalization again exceeded 64% in February 2018. These were truly unsustainable swings. What we saw in the 2021 bull run was a bit more organized, with all boats largely rising together.


I think the biggest risk to Ethereum, and by extension “rollover” as a narrative, is regulation. Even though ETH can now be positioned as a more eco-friendly crypto than BTC, one could try to argue that ETH is now a security after the switch to proof-of-stake. I personally disagree with this argument, but it is something that should be considered when investing in crypto. Additionally, the SEC is specifically warn the banks on how they keep cryptocurrencies, potentially making it cost prohibitive for some to offer the service.


While I still think we are a few years away from Ethereum overtaking Bitcoin by market cap, I think it could be argued that the “turnaround” has already happened when it comes to users. Most DeFi takes place on Ethereum. Ethereum still controls the NFT market judging by sales volume and buyer statistics. It’s unclear if any or all of these things continue. But if you think crypto is here to stay, Ethereum will continue to be a Tier 1 smart contract chain in the industry. The network effect was faster than that of BTC based on on-chain wallet addresses and there is no doubt that there is more construction on Ethereum and its scaling chains than on Bitcoin du application point of view.

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