Bitcoin and ethereum have rocketed to fresh all-time highs this week, propelling the combined crypto market to around $3 trillion.
The bitcoin price has since fallen back slightly, dropping toward $60,000 per bitcoin, while ethereum has also retreated from highs of near $5,000 per ether. Bitcoin’s market capitalization is currently around double ethereum’s at $1.2 trillion, however, ethereum has closed the gap this past year.
Now, legendary market-maker and hedge fund billionaire Ken Griffin has warned bitcoin will eventually be replaced by ethereum—but that ethereum will in turn be replaced by the next generation of cryptocurrencies.
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“The early generation cryptocurrencies, bitcoin for example, are incredibly expensive to manage payments on. Bitcoin is a huge contributor to global warming, bigger than any form of payments we use around the world in aggregate,” Griffin told The New York Times’ Andrew Ross Sorkin, speaking at the 2021 DealBook Summit. Griffin sees payments disruption as “the most attractive theory” for giving cryptocurrencies value.
Griffin, who founded and runs the Chicago-based hedge fund Citadel that manages around $40 billion in assets, pointed to card companies’ willingness to cover fraud and theft costs as one of “a number of issues that haven’t been addressed by crypto as to how payments will be made more efficient.”
“I think we’re going to see bitcoin replaced conceptually by ‘the ethereums’,” said Griffin, referring to a handful of ethereum rivals, including Binance’s BNB, solana and cardano, that have seen their prices soar at a blistering rate over the last year. “The train is still in the station.”
Griffin predicts these newer cryptocurrencies will then be replaced by the next generation that will have “the benefits of higher transaction speeds, lower cost per transaction, perhaps people will start thinking about how to better deal with security and fraud prevention.”
The ethereum price has surged in recent months thanks to booming interest in blockchain-based decentralized finance (DeFi) and non-fungible tokens (NFTs)—both largely built on top of ethereum’s network.
Many in the crypto community have previously predicted ethereum could eventually overtake bitcoin as the most valuable cryptocurrency, with DeFi—the idea that traditional financial services could be replaced by blockchain-based protocols—and NFTs—using crypto technology to tokenize all manner of digital media and assets—helping to drive ethereum adoption and, in turn, the price of its ether tokens.
Griffin also revealed he regrets not buying bitcoin years ago when advised to by a Citadel intern.
“There was a 21-year-old intern [that tried to tell me] the big picture I was missing with bitcoin, I wish I had bought the bitcoins he recommended I buy, but I didn’t,” said Griffin. “We talked about the power of blockchain but we still don’t see many solid commercial use cases [for blockchain], [which] is a really interesting technology, a powerful way to maintain a decentralized ledger around the world, but for most problems, it’s really not the solution that we need.”
Partly inspired by bitcoin, and spurred on by Facebook’s recent attempts to create a private digital currency, governments around the world have begun experimenting with digital versions of their currencies, with the U.S. Federal Reserve exploring a potential digital dollar and China already rolling out an early version of its digital yuan.
“I think we are all still trying to understand if we want to hit this world of decentralized finance and want a payment system that is low cost and effective, is it going to be solved by the crypto community? Or is it going to be solved by a digital dollar,” Griffin asked. “The Chinese are all in on a digital renminbi. I think this is still in the early innings.”
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Griffin is skeptical of the valuation bitcoin, ethereum and other major cryptocurrencies have soared to in recent years, asking “when it comes to cryptocurrencies what is the basis of valuation? It’s whether someone will pay me more for it tomorrow.”
Over the last year, pandemic-induced lockdowns and huge government stimulus injections into the financial systems have boosted the price of assets across the board.
“We’ve created a whole new class of savers because we couldn’t spend money a year ago, like the meme stocks and like cryptocurrency,” said Griffin. “People are very focused on the world of new ideas and new creations. I worry that some of this passion is misplaced when it comes to cryptocurrencies.”