Financial services giant Fidelity is forecasting how stablecoins could cause further divergence between the top two crypto assets by market cap.

In a new report, Fidelity says that the rise of stablecoin usage on Ethereum (ETH) will set it apart from its competitors in the layer-1 sector and from Bitcoin (BTC).

Bitcoin and Ethereum: Diverging Paths

"Bitcoin and Ethereum will likely continue diverging technologically as we look toward the future.

This divergence will result in more differentiated use cases and increase the potential to add further diversification to a portfolio. One specific example of this phenomenon is the rise of stablecoins," the report states.

Fidelity highlights the recent rise of stablecoins on Ethereum as a significant factor. This has already made a case for Ethereum offering more excellent utility in this sector.

Unlike Bitcoin, which is primarily held on a long-term basis, Ethereum is used as a medium for transferring assets.

Key Differences and Network Effects

Fidelity points out that in 2023, approximately $3.4 trillion, $1.4 trillion, and $3.5 trillion were transferred in Bitcoin, Ether, and Ethereum layer-1 stablecoins, respectively. This data underscores Bitcoin's role as a store of value, with investors typically holding it for the long term.

"The Bitcoin thesis hinges primarily on investors believing in its ability to hedge against currency inflation," the report adds.

This suggests that Bitcoin and Ether can complement each other in a portfolio by providing distinct types of utility and serving different markets.

Ethereum's Dominant Position

The dominant network effects of Ethereum are a significant reason other smart contract platforms may have a harder time keeping up.

According to Fidelity, Ethereum's growing utility through stablecoins and its established position as an innovative contract platform give it a massive advantage over competitors.

At the time of writing, Ethereum is trading at $2,332, while Bitcoin is valued at $57,075. As both assets evolve, their distinct characteristics and use cases further solidify their roles in the cryptocurrency ecosystem.