There's a potential event that Ethereum (ETH 2.62%) investors are looking forward to, and it's called the flippening. This will take place the moment that Ethereum overtakes Bitcoin (BTC 3.44%) in terms of market capitalization. Ethereum, with a market cap of $373 billion as of Tuesday morning, would have to more than double to overtake Bitcoin at $786 billion.
The gap has actually widened over the past month, as Ethereum's 20% decline finds it falling behind Bitcoin despite the leading crypto's 10% slide in the same time frame. Bitcoin isn't the only rival that Ethereum investors should be watching. Bulls are spending so much time looking through the windshield at Bitcoin that they're not paying attention to what's happening in the rearview mirror. Smaller players led by Cardano (ADA 2.93%) and Solana (SOL 7.00%) are starting to catch up, and there's no doubt that those crypto investors see an entirely different "flippening" scenario playing out.
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Objects in the mirror may be closer than they appear
January has historically been a great time to own Ethereum. The world's second most valuable digital currency has appreciated by at least 35% in the first month of the year in all but one year since its debut in the summer of 2015:
- January 2016: 148%
- January 2017: 35%
- January 2018: 48%
- January 2019: (20%)
- January 2020: 39%
- January 2021: 78%
It's off to a rough start in 2022. Ethereum has fallen roughly 16% month to date, challenging the 20% January decline it experienced three years ago. Naturally a lot can happen in the next two weeks. Ethereum is a volatile beast, and historically it has favored the bulls.
However, the bullish thesis for owning Ethereum in 2022 hangs largely on its upcoming migration to proof-of-stake protocols. It will be a dramatic transformation. Ethereum is the crypto world's platform of choice with its bar-raising blockchain technology, powering smart contracts and other digital applications. There are more than 3,000 popular decentralized apps built on top of Ethereum. The knocks on Ethereum -- that the crypto is too resource draining to mine and too slow and expensive to move around -- will grow quieter when the Ethereum 2.0 transition is complete.
There are two sticking points that could be holding Ethereum back, and the first is that the shift to proof of stake is taking a long time to happen. Originally slated to happen in 2019, the next major phase of Ethereum 2.0 has been pushed out to June of this year. No one will be surprised to see the goalpost moved again. There are also concerns that, even after the transformation is complete, it won't make Ethereum faster or cheaper to use than Solana and Cardano are right now.
In the same past 30 days that we've seen Ethereum surrender 20% of its value, we've seen Cardano climb by 20%. As the crypto market in general retreated over the holiday weekend, Cardano was one of the rare climbing digital currencies. It even overtook Solana in terms of market cap late last week. Solana has had a challenging past month like Ethereum, but over the past year it has popped 35-fold compared with a 150% advance by Ethereum.
This isn't necessarily the time to dump Ethereum. It has a history of bouncing back after sharp corrections. However, if your crypto portfolio consists exclusively of Ethereum and/or Bitcoin it may be a good time to consider adding some other types of cryptocurrencies to your risk-tolerant portfolio. Cardano is trending with strong momentum right now, and Solana has some key speed, cost, and other efficiencies working in its favor.
