JPMorgan says ethereum is a better bet than bitcoin as interest rates rise, due to the boom in DeFi and NFTs
- Crypto investors should hold ethereum rather than bitcoin in an era of rising interest rates, JPMorgan analysts said.
- Ethereum is at the heart of decentralized finance and the market for non-fungible tokens, two booming areas.
Crypto investors should be holding ethereum rather than bitcoin as interest rates rise, JPMorgan said, because the blockchain has more uses such as powering decentralized finance and non-fungible tokens.
JPMorgan analysts, led by market strategist Nikolaos Panigirtzoglou, said in a recent report that rising interest rates could pose a problem for bitcoin, just as they traditionally do for gold.
Bitcoin has boomed in a world of ultra-low interest rates and massive bond-buying, which have flooded markets with cash and spurred concerns about overheating. Many see bitcoin as "digital gold" and a hedge against inflation.
But central banks around the world are cutting back their support for economies in an effort to cool strong inflation. That means interest rates and bond yields are poised to start rising.
The Bank of England on Thursday said interest rates would have to rise "over the coming months." The Federal Reserve on Wednesday cut back its $120 billion a month of bond purchases.
Given that, JPMorgan said investors may be better off holding ether, the world's second-biggest cryptocurrency, which runs on the ethereum blockchain. That's because it has many more uses than bitcoin and so interest should remain stronger.
The ethereum network is central to the world of decentralized finance, a booming sector that uses crypto technology to carry out traditional financial tasks such as lending or trading. It is also at the heart of non-fungible tokens or NFTs, collectible items traded and secured using crypto tech.
"The rise in bond yields and the eventual normalization of monetary policy is putting downward pressure on bitcoin as a form of digital gold, the same way higher real yields have been putting downward pressure on traditional gold," Panigirtzoglou wrote.
"With ethereum deriving its value from its applications, ranging from DeFi to gaming to NFTs and stablecoins, it appears less susceptible than bitcoin to higher real yields."
The bank's analysts also said ethereum may be the better bet over the longer-term due to the growing importance of environmental concerns in investing.
Both cryptocurrencies currently use a validation and security system that uses vast amounts of electricity. Yet ethereum plans to move away from this system to a far less energy-intensive one by the end of 2022.
"The greater focus by investors on [environmental, social and governance investing] has shifted attention away from the energy intensive bitcoin blockchain to the ethereum blockchain," the analysts said.
However, JPMorgan has said that both cryptocurrencies currently appear overvalued, as they're far too volatile for most institutional investors.
Ethereum traded at $4,498 on Friday, just off an all-time high of above $4,600 touched earlier this week. Bitcoin was trading at $61,501, down from a record high of $66,000 in October.