A former trading exec at Galaxy Digital and Genesis Global breaks down 3 reasons why he thinks Ethereum will be the 'primary on-ramp into crypto'

Edgington, who worked on the upgrade for the past 4.5 years, described the Merge as "swapping out the engine mid-flight" while "fundamentally reengineering a chain which has hundreds of billions of dollars of value."

Despite the upgrade's success, however, markets cannot shake off harsh macro conditions and prices continue to tumble. Bitcoin and ethereum were both off over 70% from their all-time highs, according to Messari, as of Wednesday.

Joshua Lim, a former trading executive at both Genesis and Galaxy Digital, predicts that ethereum will be the "primary on-ramp for crypto" in the future, however.

ETH challenges BTC

Ethereum could challenge bitcoin as "crypto's dominant reserve and funding asset," Lim told Insider. 

Bitcoin is both the oldest cryptocurrency and is leading the trillion-dollar industry by market cap. Bitcoin's value prop is relatively simple: a store of value with a finite supply of 21 million, which proponents say creates a hedge against inflation. Amid near 40-year high inflation and a looming recession, however, bitcoin's price has continued to decline.

The first wave of institutional and mainstream interest in crypto came through bitcoin, Lim says, but the second will be via ethereum. 

In 2020, Paul Tudor Jones — one of Wall Street's most successful hedge fund managers — revealed that bitcoin was in his portfolio as central banks began to print more money. Large public companies like MicroStrategy and Tesla began snatching up bitcoin for their reserves as well. MicroStrategy, a software company founded by Michael Saylor, bought $425 million worth of bitcoin in August and September of 2020. After that, Morgan Stanley became the first major US bank to offer certain wealthy clients exposure to bitcoin funds. 

"The next logical stop for bitcoin is to replace gold as a non-sovereign store of value asset," Saylor said at MarketWatch's Best New Ideas in Money Festival.

Ethereum won't overtake bitcoin's market cap for at least "several quarters," Lim says, citing the Federal Reserve's focus on fighting inflation.

"Will a flip happen? It would take another big macro rally for risk assets to cement institutional preference for ethereum," he said. 

Lim added: "We've seen massive inflows into ethereum as a funding asset before. In the 2017 cycle, retail investors piled into ethereum as an on-ramp into ICOs. In this cycle, institutional investors recognized ethereum as the base layer of much of DeFi and stablecoin activity, so a lot of fresh capital entered the asset class via ethereum over bitcoin."

Ether as a deflationary asset and the ESG narrative

Lim says that "the prospect of ether becoming deflationary under PoS made it marginally more attractive to investors."

The Merge not only slashed Ethereum's energy usage drastically, but also changed the economics of its network. 

The transition to PoS reduced Ethereum's issuance by 4.2% a year, according to Citigroup, making it a deflationary asset and improving its case as a store of value. In an August note to clients, the firm described the transition to PoS as a way of making ethereum a "yield-bearing asset" with "cash flows." 

The ESG narrative could pull institutional capital toward ethereum as well. Bitcoin, which transacts under a PoW model, consumes an estimated 150 terawatt-hours of electricity per year, according to Cambridge Bitcoin Electricity Consumption Index. This is more than the entire country of Argentina, which has a population of 45 million.

"The 99.95% improvement in energy efficiency under ethereum PoS is an easy ESG narrative that allocators can point to," Lim added.