Stablecoins to Fuel ‘Divergence’ Between Bitcoin and Ethereum: Insights from Fidelity

Financial services giant Fidelity has released a report predicting that the increasing use of stablecoins could lead to a widening gap between the top two cryptocurrencies by market capitalization.

According to Fidelity, the growing adoption of stablecoins on the Ethereum network is set to differentiate it from both its competitors in the layer-1 space and from Bitcoin. The report suggests that Bitcoin and Ethereum are likely to continue evolving in divergent technological directions, resulting in more distinct use cases and offering increased diversification opportunities for portfolios. An example cited is the surge of stablecoins on Ethereum, which has already showcased Ethereum’s enhanced utility within this domain.

Fidelity highlights a fundamental disparity between Bitcoin and Ethereum, noting that Ethereum is predominantly utilized for asset transfers, while Bitcoin is primarily held for the long term. The report asserts that compared to other platforms for smart contracts, Ethereum holds a significant advantage.

In terms of transaction volumes, the report states that in 2023, approximately $3.4 trillion, $1.4 trillion, and $3.5 trillion were transferred in Bitcoin, Ether, and Ethereum layer-1 stablecoins, respectively. This data reinforces Bitcoin’s store of value proposition, emphasizing that Bitcoin investors typically maintain long-term positions. The report underscores that the Bitcoin narrative primarily revolves around its potential to hedge against currency inflation, suggesting that Bitcoin and Ether can complement each other within a portfolio by catering to distinct utilities and markets. Fidelity also points out that Ethereum’s dominant network effects could pose challenges for other smart contract platforms attempting to catch up.

At the time of reporting, Ethereum is trading at $2,332, while Bitcoin is valued at $57,075.