VanEck: Deflationary mechanisms may help Ethereum's value storage status surpass Bitcoin

Source: cryptoslate

Compiled by: Blockchain Knight

Analysts at VanEck have stated that Ethereum is steadily becoming a stronger competitor than Bitcoin in the battle for dominance as a store of value.

The driving force behind this shift is the increasing popularity of Digital Asset Treasuries (DATs), with global enterprises increasingly favoring Ethereum and Bitcoin as their choices for digital asset treasuries.

Initially, Bitcoin became the primary choice for digital asset treasury due to its fixed supply and recognized stability. However, recent developments have sparked more interest in Ethereum in the market.

The regulatory changes in the United States highlight the necessity of stablecoins and tokenization, which are at the core functions of the Ethereum ecosystem.

This has expanded the use of ETH beyond its original design, as several major brokers and exchanges have launched tokenized stocks on the Ethereum blockchain.

In addition, the increasing flexibility of Ethereum is seen as a significant advantage compared to Bitcoin.

VanEck analysts pointed out that Ethereum offers more possibilities for complex financial strategies, allowing institutions to accumulate ETH more efficiently than BTC.

By leveraging the staking feature of Ethereum, the treasury can earn additional ETH by participating in the network, which is a source of income that Bitcoin cannot provide in a similar way.

The transition of Ethereum from Proof of Work (PoW) to Proof of Stake (PoS) has had a significant impact on its inflation rate.

According to data from VanEck, this shift has significantly reduced the growth of ETH supply: from approximately 120.6 million ETH in October 2022 to 120.1 million ETH in April 2024, resulting in a negative inflation rate of -0.25%.

In comparison, the supply of Bitcoin increased by 1.1% during the same period, making Ethereum's inflation policy more attractive to ETH holders.

The inflation rate of Bitcoin decreases by 50% after each halving, making its inflation rate more predictable. However, the problem is that this top cryptocurrency relies on inflationary issuance to incentivize miners in the long term.

Last year, Bitcoin miners earned huge revenues from inflation rewards, totaling over 14 billion dollars.

Therefore, as the inflation rate of Bitcoin continues to decline in subsequent halvings, its security model will face increasing pressure, potentially needing to rely on transaction fees or price increases to sustain itself. In the absence of these supports, the security of the blockchain network may be at risk, which could in turn force a significant shift in the economic structure.

On the other hand, Ethereum's PoS model gives token holders more control over network governance, ensuring that decisions regarding network upgrades and economic policies more directly align with their interests.

This contrasts with Bitcoin's miner-centric governance model, where the economic incentives of miners often influence decision-making.

Therefore, VanEck analysts believe that as Ethereum continues to develop with a more flexible governance structure, it may become a better long-term store of value than Bitcoin.