The CoinShares Digital Asset Monthly Fund Manager Survey reveals that investors are shifting their digital asset allocations away from Ethereum and toward Cardano, XRP, and Polkadot.
Investors added digital assets to their portfolios primarily for speculative, value-based, and Distributed Ledger Technology growth-related reasons.
The increasing investor interest in Cardano and XRP relative to Ethereum might be due to several causes, including speculation, investor attitude, and recent development actions on the respective blockchains.
The more significant upside potential to the all-time high price for Cardano and XRP compared to Ethereum may boost speculators to invest in these digital assets over the long run.
“Ethereum Killer” blockchains
“Ethereum Killer” blockchains. Image: smartbusiness
Ethereum was designed as an open-source platform that allowed other apps to be built atop it. Ethereum has the edge over other blockchains since it was the first to implement smart contracts. Consequently, the volume of transactions on the Ethereum platform has steadily expanded throughout the years, resulting in the network’s fast expansion.
However, the platform’s scalability issue led to increased gas costs, especially during busy network hours. Another weakness of the Ethereum network was the lack of compatibility between blockchain systems.
The solutions to the problems above finally lead to the notion of “Ethereum Killer” blockchains. Competing blockchains were rapidly established in response to the obstacles presented by the Ethereum platform. Among these blockchains were Cardano and Polkadot, to mention a couple. Several advancements have happened in these blockchains.
Cardano, Polkadot and Ripple ecosystems
In September 2021, the Cardano Network’s Alonzo Upgrade enabled fully functioning smart contracts, the minting of NFTs, and the operation of several DApps. With quicker transaction times and reduced transaction fees, the Cardano ecosystem is now a direct rival to the Ethereum Network. The growing transaction fees and scalability issues probably led to the outflow of investor capital from Ethereum and Cardano.
According to the Electric Capital Developer Report 2021, the Polkadot ecosystem was among the largest and fastest-growing, with over 250 monthly active developers. At the same time, the Polkadot ecosystem was reportedly expanding faster than the Ethereum Network. This may have affected investor cash flow into the Polkadot ecosystem relative to the Ethereum Network.
Since late 2020, Ripple has been involved in a continuing legal dispute with the US Securities and Exchange Commission (SEC). The SEC asserts that Ripple engaged in an unlawful securities offering by selling its XRP coin. Initial court verdicts are favourable to Ripple’s chances of prevailing against the SEC. Speculators anticipate that a Ripple victory over the SEC will result in a price hike for XRP. Consequently, enhancing investor trust in XRP.
The disputed lawsuit of the U.S SEC and Ripple. Image: Coinpedia
Should we see further funds inflows from Ethereum towards Cardano, Polkadot, and XRP? The competition to become the most popular blockchain is intensifying. Developer engagement would expectedly increase across blockchains to make them safer and more efficient.
In May 2022, the average Ethereum transfer gas fees fell below $3 per transaction, a 10-month low. Despite this being excellent news for Ethereum Network users, it is questionable how long this gas charge level will be maintained. Crypto experts have ascribed the decline in gas fees to the recent overall decline in the cryptocurrency market, which has resulted in fewer Ethereum-based transactions.
Vitalik Buterin, the co-founder of Ethereum, disclosed that the long-awaited Ethereum Merge Upgrade would occur in August 2022. The update would signal the transition from Proof of Work to Proof of Stake as the consensus mechanism for Ethereum. The Ethereum Merge Upgrade might provide the Ethereum Network with the impetus to extend its first-mover advantage over rival blockchains.