Are Bitcoin and Ethereum finally separating?

In the month of January, Bitcoin's market dominance, in other words, Bitcoin's percentage of the total cryptocurrency market cap, halved from 66% to 33%, it’s lowest, mark ever and down from a peak of 80% in June 2017. Click here, to get more exclusive content about bitcoin and ethereum.

Traditionally, prices of Ethereum, the number 2 cryptocurrency, have long been tied to Bitcoin's price, and trends have moved in similar directions. However, we are now seeing Ethereum somewhat move towards independence from the incumbent King of Cryptocurrency. There are a number of reasons for this.

In terms of the total number of transactions, Ethereum now accounts for roughly 50% of them, compared to 33% for Bitcoin. At its peak in December 2017, Ethereum was processing over 1 million transactions a day. Then there's the Ethereum ecosystem, 80 out of the top 100 coins on coinmarketcap.com at the time of writing were built on the Ethereum blockchain. The vast majority of ICOs launched in 2017 were Ethereum based ones, and that trend is predicted to continue in 2018 and beyond.

Ethereum trading pairs are now increasing in popularity on major exchanges. Where before users had to use a Bitcoin pairing with another coin, they can now use Ethereum for the same coin. This is preferable to many traders and investors as Ethereum transaction fees are roughly 90% less than those of Bitcoin. In terms of the very largest exchanges, Finance now has 101 out of 103 coins available for trading against Ethereum and BitFinex now accepts all coins traded against Ethereum. This also has ramifications for new entrants to the market, who previously had to buy Bitcoin in order to buy any cryptocurrency. So the new money flowing into the market is now flowing into Ethereum rather than just Bitcoin.

The key ratio to look out for in Ethereum to Bitcoin prices is 0.13, this has traditionally been the level that Ethereum has struggled to break through. If we see a move to even 0.15, this demonstrates that there is inherent confidence in Ethereum as being able to take over the number one spot in the cryptocurrency ecosystem. Due to the higher supply of Ethereum, at the time of writing, a price increase to $1350 would see it overtake Bitcoin and become the number one cryptocurrency in terms of market cap, this is, of course, assuming Bitcoin’s price remains stable.

Should you invest in a Bitcoin ETF or Investment Trust?

There are a number of Bitcoin investment trusts and "Bitcoin ETFs" appearing now, on the surface these appear to be a low-risk way to invest in Bitcoin.

One such example of this is the Bitcoin Investment Trust run by Grayscale. The fund owns a fixed amount of Bitcoin on behalf of its investors.

In January 2018, the fund decided to perform a 91-for-1 stock split. In other words, for every share owned up to that point would receive an additional 91 shares. Conversely, those shares would be worth 1/91th of the value of the initial share. Under the new pricing structure, each share is worth the equivalent of 0.00101 Bitcoin. The reason for doing this is to lower the base level price and make the fund more accessible to the everyday investor. Share prices fell from $1,970 to a much more consumer-friendly $21.65. The aim of this fund is to make owning cryptocurrency as accessible as possible for people.

There are two major problems with this though. Number one, the fund trades at a significant premium when compared to Bitcoin's actual value. A slight premium would be acceptable based on the work involved, however, at current market prices, investors are paying over a 50% premium for Bitcoin under this structure. There's also an additional annual 2% management fee when all the "management" required is holding Bitcoin in a wallet. Taking all this into account, you're better off just buying Bitcoin yourself, with the two easiest methods for a first-time investor being Coinbase or Robinhood (if available).

Bitcoin ETFs

There are no pure Bitcoin ETFs available at the time of writing. A public statement by the SEC in January 2018 stated that "significant investor protection issues" needed to be examined before firms could start offering one. There were attempts prior to this to register a Bitcoin ETF, the most notable of which was by the Winklevoss Twins. The twins collectively known as the world's first Bitcoin billionaires after investing much of the money they were paid as part of their successful lawsuit against Facebook's Mark Zuckerberg in Bitcoin back in 2011, had their ETF rejected by the SEC in May 2017.

The solution

There are a number of blockchain ETFs currently available for consumer investors, including the Reality Shares Nasdaq NexGen Economy ETF ($BLCN) and Amplify Transformational Data Sharing ETF (BLOK). Both of these funds track stocks which are either pure blockchain companies or have significant portions of their business dedicated to the blockchain.

HLBK

In February 2018, Canadian regulators approved the country’s first blockchain based ETF under the ticker HLBK, this ETF is the first North American ETF that actually tracks cryptocurrencies themselves as opposed to just blockchain stocks.