JPMorgan analysts say Ethereum is a better bet than Bitcoin now

JPMorgan analysts said that crypto investors should hold Ethereum rather than Bitcoin as the interest rates rise. While Ethereum powers such booming market areas as decentralized finance and non-fungible tokens, Bitcoin, similar to gold, is likely vulnerable as bond yields and interest rates rise.

According to JPMorgan, crypto investors should be holding Ethereum rather than Bitcoin as interest rates rise because the blockchain has more uses, such as powering decentralized finance (DeFi) and non-fungible tokens (NFTs).

Market strategist Nikolaos Panigirtzoglou, who leads JPMorgan analysts, 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.

For instance, the Bank of England said on November 4 that interest rates would have to rise “over the coming months.” A day before, 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 DeFi, 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 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,” wrote Panigirtzoglou in a report. “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.”

Also, Ethereum may be the better bet over the longer term due to the growing importance of environmental concerns in investing, the bank’s analysts said. 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,” said the analysts’ report.

Meanwhile, both cryptocurrencies currently appear overvalued, as they’re far too volatile for most institutional investors, JPMorgan said.

Ethereum, the world’s second-largest digital coin, surged more than 4% in 24 hours on November 8 to hit a new all-time high above $4,700. The token was the last trading for $4,740, according to CoinMetrics data. Bitcoin, meantime, climbed 7% to a price of $66,250, inching back toward a record high above $66,900 set in late October.