Is Ethereum Beating Bitcoin At Its Own Game? #CriptoNews

President Trump announced yesterday that he had directed his Presidential Working Group to move forward on a Crypto Strategic Reserve that includes XRP, SOL, ADA, Bitcoin (BTC), and Ethereum (ETH), adding, “I love Bitcoin and Ethereum!”

For years, Bitcoin has been hailed as “digital gold”—a scarce and predictable store of value. But in recent years Ethereum has quietly outperformed Bitcoin in one key aspect: supply expansion. Since The Merge in September 2022, Ethereum’s supply has grown at a slower rate than Bitcoin’s, challenging the long-standing assumption that Bitcoin is the best form of sound money.

Unlike Bitcoin’s fixed 21 million BTC cap, Ethereum is designed to be adaptive, allowing its supply to expand or contract based on network activity. So, is Ethereum beating Bitcoin at its own game? Let’s dive in!

Is Ethereum More Sound?

Bitcoin’s fixed supply cap of 21 million BTC has been its defining feature. Unlike fiat currencies such as the U.S. dollar (USD) and the euro (EUR), which can theoretically be expanded without limit, Bitcoin follows a strict halving cycle, reducing new issuance by half every four years. This process ensures that the rate of new Bitcoin entering circulation slows over time, reinforcing its scarcity.

Following its most recent halving in April 2024, Bitcoin’s annual supply growth dropped to 0.83%. This controlled issuance has strengthened its reputation as a strong store of value, akin to gold.

Ethereum, however, follows a different approach to managing supply. Unlike Bitcoin, which has a fixed limit, Ethereum’s supply can adjust over time. Since The Merge, when Ethereum switched to a Proof-of-Stake (PoS) system, it has become increasingly deflationary. This change cut energy use by about 99.95% and significantly reduced the creation of new ETH, making it scarcer over time.

Additionally, an upgrade introduced on August 5, 2021, changed how Ethereum calculates and processes transaction fees, introducing a fee-burning mechanism. As a result, Ethereum’s supply has, at times, shrunk rather than expanded. As shown in the figure below, since The Merge, Ethereum’s total supply has grown at a much slower rate than Bitcoin’s.

While Bitcoin ensures absolute scarcity, Ethereum is more adaptive and flexible, adjusting to market conditions. If sound money is about supply growth, then Ethereum has unexpectedly surpassed Bitcoin in this regard in recent years.

Fiat Money, Bitcoin, and Ethereum?

Bitcoin and Ethereum follow different monetary policies in how their supply expands over time. But how do they compare to traditional fiat currencies like the U.S. dollar (USD) and the euro (EUR)?

As shown in the figure below, since 2020, the U.S. dollar money supply (M2) has expanded by 41%—over four times the growth of Bitcoin and Ethereum—while the euro’s money supply (M2) has grown at more than twice their rate. This highlights the contrast between fiat money’s flexibility, Bitcoin’s strict supply limits, and Ethereum’s adaptable approach, which sits in between.

Bitcoin and fiat currencies sit at opposite ends of the supply expansion spectrum. Bitcoin’s fixed supply model ensures scarcity, while fiat money can expand or contract based on economic policy. However, excessive expansion often leads to inflation, as seen with the USD and EUR since 2020. Ethereum takes a middle-ground approach. It maintains scarcity like Bitcoin but has a supply mechanism that can expand or contract based on network activity.

A Historic Lesson on Gold

History offers one of the strongest arguments against a fixed monetary system.

Before 1933, the U.S. dollar was backed by gold, limiting the money supply to gold reserves. While this ensured stability, it also prevented expansion during economic downturns.

When the stock market crashed in 1929, followed by bank failures in 1930 and 1931, severe deflation took hold. Stuck on the gold standard, the U.S. and other nations couldn’t expand their money supply to stimulate recovery.

Great Britain abandoned the gold standard in 1931, with others following. The United States held on until 1933, when President Franklin D. Roosevelt (FDR) devalued the dollar and cut its gold backing, effectively expanding the money supply. Economists like Milton Friedman and Ben Bernanke later credited this move with helping end the Great Depression.

Gold may be a good store of value but can be problematic as a medium of exchange, particularly in breaking deflationary spirals and supporting economic growth. Meanwhile, fiat money expands without limit, risking inflation. The ideal monetary system may lie somewhere in between.

The Show Goes On

Trump’s endorsement of both Bitcoin and Ethereum in his Strategic Crypto Reserve announcement will undoubtedly spark further debate over which is the better form of crypto currency.

While Bitcoin remains the original “digital gold,” Ethereum is emerging as a strong contender—not just for its scarcity, but for its flexibility and economic adaptability.