Better Buy: Bitcoin vs. Ethereum
Mall investors are evaluating their options in the cryptocurrency market these days. The two biggest names in the business are getting more attention and analysis than most. We asked two of our cryptocurrency editors to determine if Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) would be the best choice for an individual investor today.
Read on to see the pros and cons of choosing one of these familiar names over the other.
Image source: Getty Images.
Bigger is just better this time
Anders Bylund (Bitcoin): Most investors in the cryptocurrency space are probably best served by holding both Ethereum and Bitcoin. But if I had to pick just one of these industry giants, it would be Bitcoin. There are two main reasons for this conclusion.
First, many cryptocurrencies try to do the same thing as Ethereum, and some of these alternatives come with significant technological improvements. I count three rivals of Ethereum in the top 12 cryptocurrencies by market cap.
Solana (CRYPTO: SOL) executes smart contract transactions much faster than Ethereum. So do avalanche (CRYPTO: AVAX) and Cardano (CRYPTO: ADA). All three also use more environmentally friendly blockchain structures, giving developers of decentralized applications yet another reason to select a smart contract platform different from the main Ethereum solution.
Together, this trio is already worth 25% of Ethereum’s total market value. All of them also outperformed Ethereum in 2021, often by far:
Ethereum price data by YCharts
Bitcoin has rivals, but the simpler value storage and money transfer functions of this cryptocurrency leave less room for disruptive challengers. Add up the five largest unnamed digital currencies Bitcoin in this part of the cryptocurrency industry, and you’ve got a total market value of $ 107 billion, or just 12% of Bitcoin’s dominant footprint.
This is where my second reason for preferring Bitcoin comes in. The grandfather of the cryptocurrency industry holds a significant first-mover advantage.
Long-term winners in this sub-sector should strive to be accepted by (thoroughly) consumers, governments, banks, investment managers, financial services, retailers, subscription services, charities, street acrobats and birthday party organizers. And more, of course, these are just the most obvious categories of money management that I have in mind.
Bitcoin is already making its way into most of these segments (with the exception of party clowns, who can drag their glittery feet more than most). Other digital currencies are trying to follow, but Bitcoin is setting the tone for the industry as a whole. For example, any retailer who accepts Litecoin Where Dogecoin is guaranteed to take Bitcoin too. And it’s not a two-way street.
Thus, Ethereum faces massive competition in an industry where better functionality is more important than tradition and early adoption. Bitcoin has fewer and smaller rivals in a target market where a single early winner could very well make any other solution irrelevant in the long run. It’s an easy choice, assuming I can only choose one name.
Keith Speights (Ethereum): Years ago, Budget Notice (NASDAQ: RCA) was the second largest car rental company. He ran a very successful marketing campaign centered on the theme: “Why go with us? We are trying harder. I think this tagline is applicable to Ethereum.
Ethereum is the second largest cryptocurrency based on market capitalization behind only Bitcoin. But it is rapidly gaining ground. So far this year, Ethereum has outperformed Bitcoin by almost a factor of seven. Developers choose the blockchain platform because of its support for smart contracts that support non-fungible token (NFT) listing hubs and a long list of decentralized applications.
I’m looking for Ethereum to gain even more momentum in 2022. The second and third phases of a massive upgrade (called Ethereum 2.0, or Eth2) are scheduled for next year. This upgrade will make Ethereum much faster and much cheaper than it is today. However, all the benefits that attracted developers and buyers will remain intact.
Maybe Ethereum won’t pull Bitcoin out of the top spot anytime soon. But because its development community is putting more effort into it, I would expect it to be a bigger winner than Bitcoin.
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Anders Bylund is not playing the favorites. He owns Bitcoin, Cardano, Ethereum, Litecoin, and Solana. Keith Speights has no position in the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.