Analysis of reasons why BTC may be surpassed by ETH before the next cycle

Maybe ETH will surpass BTC sooner than expected. Let me explain why:

Bitcoin aims to become the global reserve currency, and Ethereum aims to become the infrastructure for the global digital economy . Both visions are huge, so it would be better to compare the networks' likelihood of gaining their respective market shares.

Bitcoin has never generated meaningful transaction revenue relative to its security budget, instead heavily subsidizing security with block rewards. The current model is unsustainable and undermines its potential to become a global reserve currency.

Ethereum has become the base layer for the largest dApp ecosystem and has the best economic system among cryptocurrencies.

The network currently has:

• $24.6 billion in DeFi TVL

• $84.7 billion in stablecoins

In 2022, it facilitated more than:

• 1.2T USD in DEX spot trading volume

• $52.6 billion in NFT trading volume.

I expect Ethereum to surpass Bitcoin before the end of the next cycle . Ethereum's market cap lags by about $150 billion, but the combined outperformance will be a strong tailwind for ETH's fundamentals.

If we only look at the dollar value of miner revenue, Bitcoin appears to be doing better .

Since 2016, miners' annual income has been on an upward trend.

But if you analyze the income structure, you will find the problem behind it... Bitcoin heavily subsidizes security through block rewards. 95% of Bitcoin miners' rewards come from inflationary block rewards, and only 5% is real income from transaction fees .

PoW consumes a lot of energy by design . This is great for security, but it creates forced sellers because miners need to offset their production costs (electricity). Even with low inflation, 95% of miner sales are newly minted BTC because there are almost no fees generated.

Bitcoin does not support smart contracts, so BTC is the only form of value that can exist on the network . Users must pay fees in each transaction to transfer BTC. Therefore, the fees are dependent on the circulation velocity of BTC, but users claim to be hoarders...

In contrast, ETH is traded in the digital economy as currency . Users pay ETH to transfer ETH, stablecoins, and other tokens, or interact with DeFi applications. Ethereum expands the possible actions beyond just sending, receiving, and holding BTC.

During bull runs, Ethereum’s real return percentage increased along with total revenue, highlighting the network’s reflexivity. However, when on-chain activity decreases, reflexivity is hurt, as can be seen from the retracement of the real return percentage in 2022.

Dividing 2022 into pre-merger and post-merger eras shows how Ethereum has addressed inflation by diversifying validator income. After the merger, Ethereum validators receive 62% of real income from transaction fees, ETH burns, and MEV payments.

ETH burn and MEV are also correlated with the level of on-chain activity. More transaction volume leads to higher base fee burn and more MEV opportunities. However, in a bear market, Ethereum's net issuance is close to zero and creates positive value for stakers.

Migrating to PoS also resulted in a reduction of $1.7 billion in ETH emission in just 117 days . This is important for liquidity flow, as ETH requires less buying pressure to maintain the same price. Impact on inflation? ETH's 30-day annualized inflation rate is up to 0.00%.

Likewise, Bitcoin is not dead. It is seeing widespread adoption by individuals, public companies, and countries in 2021-2022. Its community may work to prioritize sustainability in the near future, but its current trajectory will cause it to lag relative to Ethereum.