Researchers Say Ethereum Superior Store of Value vs Bitcoin

Academic research out of Australia suggests that Ethereum is empirically a better store of value asset over Bitcoin (BTC).

The research was co-authored by Ester Félez-Viñas from the University of Technology Sydney, Sean Foley from Macquarie University, Jonathan Karlsen from the University of Western Australia, and Jiri Svec from the University of Sydney.

The paper starts off by mentioning that while Bitcoin’s hard supply of 21 million coins has gained recognition as a legitimate hedge against inflation, Ethereum may be on track to be one step ahead with deflationary tokenomics.

“With up to half of the networks blocks destroying more Ethereum than is created, the notion that Bitcoin offers the best inflationary hedge among the cryptocurrencies is increasingly coming under threat. Such protocol improvements could pave the way for more cryptocurrencies to improve their anti-inflationary characteristics, becoming better stores of value than Bitcoin.”

The report’s thesis primarily leans on the EIP-1559 upgrade, which tweaked Ethereum’s fee structure to burn a portion of transaction fees, permanently taking them out of circulation. The researchers argue that EIP’s transaction mechanisms that slow the growth of the supply of ETH “erodes the advantage of Bitcoin as an inflationary hedge.”

While Bitcoin has a hard cap on supply, new coins are still being minted into existence, and the report argues that Ethereum is already less inflationary than Bitcoin because of the amount o ETH being burnt.

If demand for Ethereum continues to grow, which the researchers believe will happen due to it being the primary ecosystem for decentralized finance (DeFi), its issuance rate will fall below that of Bitcoin.

The report concludes by implying that Ethereum may be the third big step in the evolution of store of value assets, after gold and Bitcoin.

“... Ethereum displays a significantly lower net issuance rate of tokens than Bitcoin, achieved by destroying the fees associated with each transaction. In many cases the amount of Ethereum burned outpaces the network’s creation of new tokens, resulting in Ethereum potentially becoming the world’s first deflationary currency. We argue that this provides better inflationary hedging properties than Bitcoin, and Ether may therefore offer a superior long-term value storage than Bitcoin.”

According to watchtheburn.com, nearly 1.1 billion ETH have been burned since the rollout of EIP-1559, worth roughly $4.9 billion at current prices.