Morgan Stanley’s wealth management global investment office has published a new report on the second-largest cryptocurrency by market capitalization, Ethereum (ETH), noting it could lose market dominance to competitors like Cardano ($ADA), Tezos ($XTZ), and Solana ($SOL) over its transaction costs.

The report, titled “Cryptocurrency 201: What is Ethereum” was first reported on by Cointelegraph and provides readers with a detailed overview of the Ethereum ecosystem and its relation to the flagship cryptocurrency Bitcoin.

The report points out that Ethereum is more volatile than BTC, and points out that because of its “more ambitious addressable market,” it faces “more competitive threats, scalability issues, and complexity challenges than Bitcoin.”´

Morgan Stanley’s analysts wrote that Ethereum could lose smart contract superiority to cheaper and faster networks, which include Solana ($SOL), Cardano ($ADA), Tezos ($XTZ), Polkadot ($DOT), and others. IT reads:

Ethereum faces more competition in the smart contract market than Bitcoin faces in the store-of-value market. Ethereum may lose smart contract platform market share to faster or cheaper alternatives.

The investment bank’s analysts added that because of the heightened competition it faces, Ethereum poses a greater investment risk than bitcoin, with fewer transactions per user being needed to use BTC, which is “akin to a decentralized savings account,” while ETH demand is “tied more closely to transactions.”

This means that scaling constraints could hurt Ethereum demand more than they hurt demand for BTC. The analysts also went into the regulatory status of decentralized finance applications and non-fungible tokens, which could see regulators crack down on them in the future, potentially reducing demand for transactions on Ethereum.

The report adds that while Ethereum is more centralized than BTC, with the top 100 addresses “holding 39% of Ether, which compares to 14% for Bitcoin,” it also has greater market potential and deflationary traits via its transaction-based burning mechanism.

As CryptoGlobe reported late last year, data from the blockchain showed that around $800,000 worth of Ethereum were being burned per hour, with over $5 billion worth of the cryptocurrency having already been burned.  Ethereum’s performance, Morgan Stanley adds, is set to significantly improve when it transitions to Proof-of-Stake.

Notably, analysts at JPMorgan led by Nikolaos Panigirtzoglou have revealed they see Ethereum losing market share to rivals like Solana ($SOL) when it comes to non-fungible tokens (NFTs). The analysts wrote that Ethereum’s volume share of non-fungible token trading fell from 95% at the start of 2021 to 80% as a result of the high transaction fees seen on the cryptocurrency’s network.

Analysts at Morgan Stanley have earlier this month, in a research note titled “State of the Bear Market,” downplayed bitcoin’s 50% correction from its all-time high seen in November as the figures show the drop was within historical norms.

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