I noticed several statistics about Ethereum (CCC:ETH-USD) and its rising popularity vs. Bitcoin (CCC:BTC-USD) in the latest Coinbase (NASDAQ:COIN) shareholder letter. Coinbase is the largest crypto exchange in the world and reflects a good deal of the major sentiment in the trading of cryptos.
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You can see what I wrote about Coinbase’s blowout quarter in my recent InvestorPlace article on COIN stock. In it, I point out that the increase in volatility is actually good for Coinbase. But I wanted to also write about how Coinbase experienced a surge in Ethereum trading this past quarter.
Crypto Changes at Coinbase
| Trading Volume (% of total) | Q2’20 | Q3’20 | Q4’20 | Q1’21 | Q2’21 |
| Bitcoin | 57 | 32 | 38 | 39 | 24 |
| Ethereum | 15 | 18 | 14 | 21 | 26 |
| Other crypto assets | 28 | 50 | 48 | 40 | 50 |
For example, look at this table, adapted from one in Coinbase’s Q2 shareholder letter. It shows that Bitcoin trading volume, as a percent of the total volume at Coinbase, fell from 38% in Q4 2020 and 39% in Q1 of total volume to just 24% in Q2. That is a drop of over 38% from its peak.
However, by contrast, Ethereum rose from 14% of total volume in Q4 2020 to 26% in Q1. In other words, Ethereum trading rose by 86% over that period. In fact, Ethereum is now larger as a percent of total trading volume at Coinbase than Bitcoin.
This means that more people want to buy and sell Ethereum in Q2 than Bitcoin, even as the company’s trading volume rose by 38% from $335 billion in Q1 to $462 billion in Q2.
Moreover, Ethereum rose as a % of the total assets on Coinbase’s platform. The next table shows that ETH tokens rose from 13% of the total as of Q4 2020 to 24% of the total by Q2.
| Assets on Platform (% of total) | Q2’20 | Q3’20 | Q4’20 | Q1’21 | Q2’21 |
| Bitcoin | 64 | 57 | 70 | 62 | 47 |
| Ethereum | 12 | 15 | 13 | 14 | 24 |
| Other crypto assets | 18 | 23 | 13 | 21 | 25 |
| Fiat | 6 | 5 | 4 | 3 | 5 |
Note also, at the same time, that Bitcoin fell from 70% of total assets as of Q4 2020 to less than half at 47% in Q2. Keep in mind that the total assets doubled from $90 billion in Dec. 2020 to $180 billion by the end of Q2 2020.
This means that as its assets rose at Coinbase about a quarter of the total now are Ethereum tokens, up from 13%. In short, more people want to own Ethereum.
Why the Changes?
For one, as Coinbase points out, volatility and crypto asset prices are highly correlated with trading revenue. I suspect that is the same with asset levels on its exchange platform.
But more fundamentally, I suspect that investors are tired of Bitcoin and want to own a more progressive crypto, for a lack of a better term. For example, Ethereum now makes up the vast majority of the $80 billion in Defi (decentralized finance) applications. These are contracts written in blockchain software that cover things like earning interest, paying for insurance and lending money.
In fact, it was recently reported that Ethereum now has 2.91 million unique addresses using at least one Defi protocol, up 65% in just one quarter. Moreover, the total number of Ethereum addresses grew by 10% quarter over quarter. That works out to an annual run rate of 46.4%, or nearly 50%. So, no wonder the volume of trading and ownership of Etherum has skyrocketed.
What to Do With Ethereum
For the past several days, Ethereum has been mostly trading for just over $3,000. It now has the second-largest market value at approximately $350 billion, compared to Bitcoin at $850 billion.
However, so far this year ETH crypto is up 326% from $730 to $3,025, whereas Bitcoin is up just 56% from $29,374 to $44,706, as of Aug. 17. This huge outperformance represents the large relative gain in popularity for Ethereum.
Ethereum is still well off its peak of $4,362 on May 11. So, in a sense, there is still time to get in ETH’s rise if the crypto eventually ends up back where it was. Certainly, Coinbase traders seem to think so.
On the date of publication, Mark R. Hake holds a long position in Bitcoin and Ethereum but did not hold any position in any other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.