It is no surprise that investors are interested in cryptocurrencies. They are among the best performing asset classes this year. And the cryptocurrency community has rallied around this emerging asset class, raising the belief that cryptocurrencies are the next big thing in finance.
Bitcoin was first traded in 2009. Back then, you could buy any of the new digital tokens for less than a penny. Prices have steadily risen – albeit with great volatility over the years – and as of October 19, bitcoin was close to its all-time high at over $60,000.
Ethereum debuted in 2015 at under $3 and soared to over $1,400 in 2018. At the time of writing, Ethereum was trading at over $3,800.
By comparison, shares of General Electric Co. (ticker: GE) were worth just under $3 in 1995, taking into account dividends and stock splits since then. Today, it trades at around $104.
Although they are the two largest cryptocurrencies by market capitalization, the similarities more or less end there. Bitcoin and Ethereum are totally different animals, developed for different reasons and with different internal dynamics.
But enough history – investors want to know which is the better buy: Bitcoin or Ethereum? Here’s a quick rundown of some of the key considerations for each cryptocurrency’s investment outlook.
The de facto leader of cryptocurrencies, no other coin comes close to bitcoin, which trades under the acronym BTC. Bitcoin’s market capitalization now exceeds $1 trillion. The total market capitalization of all cryptocurrencies is around $2.5 trillion, and the second most valuable digital currency is Ethereum, which has a market value of around $450 billion.
Here are some key things investors should know about BTC in the Bitcoin versus Ethereum investing debate:
- 1. It enjoys the most attention from major investors. The Winklevoss twins, the famous Harvard alumni who claim Mark Zuckerberg stole their idea for Facebook Inc. (FB), tried to launch a bitcoin exchange-traded fund, but they were rejected by the US Securities Commission securities and exchange.
Cryptocurrencies are becoming a widely accepted asset by the investment community. The appetite of individual and institutional investors for cryptocurrency investments is growing. This interest can only grow as the SEC recently approved the first bitcoin futures ETFs to be released.
- 2. It is relatively stable, simple and accepted. A decentralized currency, beyond the reach of the Federal Reserve or any other central bank and with a predefined maximum supply, is an attractive concept that people around the world can resonate with. And in the case of bitcoin, the market’s lofty opinions on this concept have been thoroughly tested and validated over time.
“Bitcoin is a rare digital currency and a store of value. Although still volatile, it tends to be one of the most stable cryptocurrencies, with the longest history, and has been the most consistent and best performing investment asset year after year. over the past 10 years,” says Steve Ehrlich, CEO and co-founder at Voyager Digital, a cryptocurrency broker.
Alex Adelman, CEO and co-founder of Lolli, the first bitcoin rewards app that lets people earn bitcoins by shopping online, highlights the unique role the coin plays. “We believe bitcoin is a revolutionary currency that is digitally rare, anyone in the world can participate in, which is unique compared to everything else,” says Adelman.
- 3. The offer is limited. There will only ever be 21 million bitcoins. This known limit to global supply is one of the main reasons why some investors view cryptocurrency as digital gold. But unlike gold, it is not possible to discover new reserves, and almost 90% of bitcoins, or 18.6 million, have already been mined. The rate of new BTC creation also slows over time through a process called “bitcoin halving,” which halves the rate of bitcoin creation for every 210,000 block transactions. The last bitcoin halving took place in May 2020; at the current rate, the next halving will take place in 2024.
Before you ask yourself “Should I buy bitcoin or ethereum?” you need to understand the different motivations behind bitcoin and Ethereum, or ETH.
1. Ethereum has a different purpose than Bitcoin. The two major cryptocurrencies have radically different use cases and purposes, with Ethereum functioning as a decentralized network on which applications can be built. See the article: Renault (EPA:RNO) stock opinion: The last five years have not been profitable for investors. Many cryptocurrency tokens are actually issued on the Ethereum network.
“When people compare bitcoin and Ethereum, it’s a bit like comparing gold and electricity. They both have value, but have very different uses,” says Adelman. “Ethereum is an infrastructure. It is a blockchain that is in its infancy but has the potential to revolutionize finance and technology. »
The ability to use the Ethereum platform to change the way mortgage transfers, securities trading, and many other areas work has helped spawn its next feature.
2. There is more development. Naturally, as the usefulness of Ethereum is limited only by the ingenuity of developers around the world, there is more activity around the platform. Technically, the cryptocurrency used to facilitate Ethereum transactions is called “ether”, but it is commonly referred to as “ethereum”.
Anyway, the number of Ethereum-related repositories on the Github developer platform is 263, compared to four for Bitcoin.
Repositories are similar to project folders where developers collaborating through Github can access project information.
3. The way blocks are created has fundamentally changed. Instead of the miners with the most computing power having the greatest advantage in successfully creating new tokens, it is now those with the largest stakes who are granted this right.
“Ethereum was updated to mint new ETH through a process called proof-of-stake (PoS),” says Daniel Polotsky, CEO and founder of Bitcoin ATM operator CoinFlip. With Proof of Stake, users must provide collateral, or “stake,” in the form of ETH to become a validator on the network. So, the more ETH staked, the higher the value, because there is less ETH in circulation,” says Polotsky.
“In addition, Proof of Stake removes costs associated with mining, such as electricity and hardware costs, which means miners will sell less ETH. Instead, these ETH will be pledged, which will further increase their value,” adds Polotsky.
The growth of decentralized finance, or DeFi, is another bullish catalyst for Ethereum. The concept is to eliminate traditional financial intermediaries like brokers and exchanges. This idea has received renewed interest from the general public, as some societyBrokerage companies like Robinhood have banned investors from buying stocks like GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC) during the meme stock frenzy in early 2021.
Should you buy Bitcoin or Ethereum?
The ultimate debate between Bitcoin and Ethereum as investments comes down to the risk profile of the investor. Both have bullish catalysts for the foreseeable future as the world becomes more digital and acceptance of cryptocurrencies increases. See the article: Gold Price Forecast: Stable around $1760, as US bond yields cling to 1.60%.. Bitcoin is the more widespread and stable of the two, although bullish sentiment among experts in the field seems to have only grown over the past year for Ethereum.
As with most investments, it is possible that with Ethereum’s higher risk comes higher reward potential. In any case, we are no longer in 2009: Both currencies have passed the proof-of-concept phase; now is the time for investors who have not considered this asset class in the past to start taking BTC and ETH seriously.