While the top 100 Ether addresses hold 39% of ETH's supply, the top 100 Bitcoin addresses hold just 14% of BTC's supply. Volatility is another concern.
Morgan Stanley has warned that Ether's dominance could begin to dwindle as it faces increasing competition from rival blockchains.
Setting out the risks associated with the world's second-largest cryptocurrency, analysts at the U.S. investment bank warned that Ether is "less decentralized than Bitcoin."
Volatility is another concern. The report adds:
"Since 2018, Ethereum's 60-day volatility has been approximately four to five times greater than that of the S&P 500. Notably, Ethereum has been approximately 30% more volatile than Bitcoin since 2018. In 2021, its 60-day volatility has averaged around 86%, roughly seven times more than the S&P 500."
Although the authors acknowledge that the Ethereum blockchain "has created an entirely new market for smart contract platforms" — with established use cases including decentralized finance protocols and non-fungible tokens — they fear that other networks could begin to steal its market share.
It points to how Solana has been specifically designed "to allow faster, cheaper smart contract transactions," while Cardano was developed by one of Ethereum's initial co-founders.
Big Challenges Ahead
A major concern for Morgan Stanley going forward is Ethereum's ability to continue growing — and the impact this will have on scalability.
Warning that this network "needs to store a very large amount of data" — all while offering faster and cheaper transactions than rivals — the report warns:
"Ethereum's blockchain, measured in gigabytes, is growing faster than Bitcoin's, and its memory requirements have surpassed Bitcoin's in half the time. Over time, Ethereum's storage demand, unless changed, will likely outstrip its resources."
The bank also pointed to how high transaction fees already make Ethereum's network "too expensive for small-value transactions."
Concluding its report, Morgan Stanley added that the biggest unknown of all might be regulation — with the landscape beginning to shift as governments around the world play catch-up:
"Much of the activity on Ethereum is in DeFi and NFTs — two areas with rapidly evolving regulations. Regulations that restrict or eliminate certain market segments, such as finance, from using Ethereum could reduce demand for Ethereum transactions."