Ethereum has been enjoying its second place in the cryptocurrency market cap rankings for quite a few years now, but its position could be threatened by a pretty unlikely challenger – Tether’s USDT stablecoin.
Even though USDT is widely popular, it isn’t discussed as often as other cryptocurrencies because its price pretty much always hovers around $1. The true measure of the growth of USDT is its market capitalization, which essentially tells us how many USDT tokens are in circulation. This figure has seen immense growth in 2020 and is likely to continue on its trajectory in 2021 as well.
Bloomberg analyst Mike McGlone made the case for Tether surpassing Ethereum in the Bloomberg Crypto Outlook report for Q4 2020. In the report, McGlone wrote why Ethereum could lose its number 2 spot to Tether:
Indicating demand for a digital version of gold (Bitcoin) and a crypto-asset like the dollar, if current trends prevail, the market cap of Tether may surpass Ethereum next year. Increasing adoption of stable coins is likely a precursor for central bank digital currencies and promises to be more enduring than alt-coin speculative excesses.Bloomberg analyst Mike McGlone
McGlone elaborated on this prediction, saying that Ethereum’s market cap has been stagnant since 2017, while USDT is seeing rapid growth. He also added that one of the drivers for Tether’s growth is the aftermath of the cryptocurrency bubble of 2017, particularly indicating that the still-deflating broad crypto-asset bubble from 2017 is migrating assets toward Tether.
According to McGlone, the rise of stablecoins is an indicator that it is just a matter of time before central bank digital currencies (CBDCs) become a reality.
As stablecoins rise, can Tether surpass Ethereum in market cap?
As per cryptocurrency data aggregator CoinCodex, the Ethereum market cap is currently $43.5 billion compared to USDT’s market cap of $15.9 billion. In terms of trading volume, USDT has the advantage. At the time of writing, $49 billion worth of USDT changed hands across the world’s cryptocurrency exchanges, compared to ETH’s 24-hour volume of $16 billion.
Ethereum and Tether market cap in 2020
Even though Ethereum still has a large lead in market capitalization, the trends are suggesting its 2nd place spot could be in trouble. Since January 1, 2020, Ethereum’s market cap has increased by 190%. USDT’s growth was even more impressive, however, as the market cap of USDT is up 286% year-to-date. As stablecoins continue to become more and more relevant and start to replace BTC as the main reserve assets in the cryptocurrency market, USDT will likely be the largest beneficiary as the clear leader in the sector.
Tether has issued USDT tokens on many different blockchain platforms – ironically, 65% of the USDT supply exists on the Ethereum blockchain. As a stable asset, USDT enjoys considerable demand from Ethereum-based DeFi protocols and decentralized exchanges, which can always make good use of stablecoins. On centralized exchanges, USDT has been the leading player for quite a few years now, and is one of the main ways in which traders secure profits or hedge against volatility in the cryptocurrency markets.
So far, no Ethereum-based token has managed to reach the market capitalization of ETH. Will USDT prove that such a feat is not impossible?
Ethereum won’t go down without a fight
In any case, Ethereum will not give up its second place spot without a fight. This year, we saw a huge boom in DeFi (decentralized finance) that brought the Ethereum network to its very limits. While users certainly did not appreciate the high transaction fees, it was a clear sign that there is plenty of demand for what Ethereum has to offer.
2021 will be the year when Ethereum 2.0 starts taking a more concrete form. Users will be able to start staking their ETH when Phase 0 of Ethereum 2.0 launches. Multiple Ethereum 2.0 are already available, and Ethereum 2.0 testnets are already well underway.
Even though the full rollout of Ethereum 2.0 will take a few years, layer-2 solutions such as Optimism are already providing a way to massively improve the efficiency and speed of working with the Ethereum blockchain. As an increasing number of people learns about crypto assets and how to invest in Ethereum, the platform itself will actually be ready to handle a drastic increase in activity.
2021 — very interesting year for the crypto market
Taking the above into account, it’s pretty clear that surpassing ETH will not be an easy task for the USDT stablecoin. Tether also shouldn’t ignore its competitors, as the likes of USD Coin are steadily making progress and taking their ecosystems to the next levels. One thing is for sure – 2021 will be a very interesting year in the cryptocurrency markets.
For now, it seems that only Bitcoin is safe in its position at the top of the cryptocurrency sector. As the first cryptocurrency, it will take something truly special to surpass its market cap, even though Ethereum came pretty close to achieving that in 2017.
Edward is a finance expert that experience the 2007 stock market crash first hand. In 2010, he discovered Bitcoin and has been a cryptocurrency advocate ever since.