Bitcoin vs Ethereum: Which is the best investment?
Bitcoin vs Ethereum: Which is the best investment?
Bitcoin’s long reign as the top cryptocurrency to hold in your portfolio could be coming to an end.
Which begs the question: what would you invest in if you could only have one cryptocurrency in your portfolio? For good reason, most people would probably say Bitcoin (BTC 2.29%). Bitcoin is not only the most well-known and popular cryptocurrency, but it is also often used as the standard against which all other cryptocurrencies are measured. Bitcoin has always outperformed its competitors in terms of market capitalization.
So, is it possible that Ethereum (ETH 6.30%) is a better long-term investment than Bitcoin? For years, Ethereum has been a distant second to Bitcoin. However, there are several main reasons why Ethereum may now be a better long-term investment.
Most importantly, the technology platform that underpins Ethereum is about to undergo a significant upgrade.
The merger before the outbreak: the evolution of Ethereum
If there is only one reason to reconsider your Ethereum investment thesis, it has to be the merger. This is the long-awaited transition of the Ethereum blockchain from a proof-of-work to a proof-of-stake consensus mechanism.
In layman’s terms, this means that Ethereum will soon be running on superior technology, allowing everything on the Ethereum blockchain to be done faster, cheaper and better.
Bitcoin, on the other hand, is still mired in its energy-intensive, low-throughput proof-of-work mining technology. According to some, the July crypto rally was fueled by optimism about the upcoming merger, and rightly so.
utility
This brings us to the second reason why Ethereum is a better long-term investment than Bitcoin. Simply put, Ethereum has more real-world utility than Bitcoin. Non-fungible tokens (NFTs), smart contracts and decentralized finance (DeFi) protocols were created by developers and run on the Ethereum blockchain. Ethereum has a whole ecosystem around it that Bitcoin does not.
While Bitcoin has more social media avatars trying to push it higher, Ethereum has more developers, entrepreneurs and IT professionals bringing real-world applications to life. You can use Bitcoin to pay for transactions or keep it as a long-term store of value in hopes that its value will increase due to digital scarcity. However, Bitcoin is much more limited than Ethereum due to its underlying technological infrastructure.
Changing Investment Narratives
This brings us to the final reason why Ethereum is a better long-term move than Bitcoin: the entire investment narrative around Bitcoin is falling apart. Until the market crash this year, the main reason to hold Bitcoin for the long term was that it was unrelated to traditional investments like stocks. In other words, even if the stock market as a whole sank, Bitcoin would not. It would function similarly to “digital gold” in this regard. When everything else was melting, it would have intrinsic value.
As more investors started to consider Bitcoin as “digital gold”, it was only natural that people would want to hold onto BTC during a crisis or downturn. But what happened in the most recent market downturn? Bitcoin went down like any other cryptocurrency, albeit harder and faster in some cases. As a result, some of Bitcoin’s allure as “digital gold” is fading.
At the same time, Merge’s shift to a proof-of-stake mechanism will turn ETH into a deflationary asset, increasing its appeal as a potential inflationary hedge. Also, due to the way staking works, an increasing amount of ETH will be “locked in” and unavailable for trading. The price of ETH will naturally increase as a result, due to the simple law of supply and demand.
Ethereum: A Foundation for the Future
As if that wasn’t enough, a growing number of high-profile companies across the world are building on the Ethereum blockchain. Simply put, Ethereum is quickly becoming the blockchain of choice for large institutions due to its flexibility and scalability. Ethereum is “digital oil” if Bitcoin is “digital gold”.
Ethereum will be the most valuable cryptocurrency in the long run because it has more practical applications.
final thoughts
There is no doubt as to the usefulness and adoption of Ethereum, but as the September merger approaches, those who have not yet invested in Ethereum should be prepared for a “buy the rumor, sell the news” situation, as most part of the recent rise in the price of Ethereum is largely due to the hype surrounding the Fusion. As with any investment, do your own research and never invest more than you can afford to lose.
I write about blockchain, cryptocurrencies, NFTs and other disruptive technologies and innovations.
