Bitcoin vs. Ethereum: Which crypto is the better 2021 investment?
Cryptocurrencies are soaring this year. Already, Bitcoin is up 98% to just over $57,000 as of the end of the day on Monday. That compares to a 30% gain by the S&P 500 Index during the same span.
But Bitcoin’s big gain isn’t even close to the top return that can be found in the crypto world. In fact, the second-largest crypto is growing much faster. So far in 2021, Ethereum is up a staggering 434% to just over $4,000, according to Coindesk data.
That four-times-higher growth also means that the No. 2 crypto (Ethereum) is making ground on No. 1 crypto (Bitcoin). As of the end of the day Monday, the market capitalization of Bitcoin—the combined value of all its digital coins—stands at $1.1 trillion. That’s compared to Ethereum’s nearly $500 billion market capitalization.
Why is Ethereum gaining ground on Bitcoin? Some investors, such as Mark Cuban, are calling attention to Ethereum for its ability to process more transactions per second than Bitcoin. In the digital world, speed wins.
Then again, the gains of both Bitcoin and Ethereum pale in comparison to that of Dogecoin, which is up over 10,000% this year. That has made Dogecoin the third-largest crypto, with a market cap of $64 billion.
But can this 2021 run on crypto be sustained? Daniel Ives, managing director of equity research at Wedbush Securities, tells Fortune that there is “clearly some froth” in some crypto prices; however, he foresees the run continuing.
“We believe the crypto boom is still in the early innings of playing out for the next decade,” Ives told Fortune. “While regulatory goal posts need to put in place, we believe the use cases for crypto and transactions throughout the crypto universe are just starting to play out. From a pure demand perspective, we see crypto prices going higher, led by Bitcoin.”
This story was originally featured on Fortune.com
Crypto Fundamentals: The Top 3 Cryptocurrencies Explained
Bitcoin, Ethereum, Dogecoin, Tether, Polkadot. With so many crypto assets grabbing headlines these days, it can be hard to keep them all straight.
Here we break down the top 3 cryptocurrencies by market capitalization, as reported by CoinMarketCap, as of the time of writing.
What the Top Cryptocurrencies Have In Common
To best understand the differences between cryptocurrencies, it is easiest to start with what they have in common.
Each crypto asset is basically computer code. It works by utilizing a private key, compromised of a string of random numbers and letters, that unlocks a virtual vault with your assets in them, whether cryptocurrencies, NFTs, or anything else that the particular blockchain is configured for.
These private keys are tracked on a blockchain, which is essentially a virtual ledger that records every transaction that has ever happened: Person A gives one Bitcoin to person B, who gives it to person C, ad infinitum.
For cryptocurrencies like Bitcoin, that blockchain is used to track a digitized, decentralized payment network. Recording and verifying transactions requires the computational power of a specialized computer or computer network known as a “mining rig.”
Bitcoin
Bitcoin (BTC) was the first cryptocurrency to debut, and it remains by far the largest and most widely traded. Its current market cap is over $1 trillion.
The concept first appeared in a white paper in 2009 by an individual (or individuals) under the pseudonym Satoshi Nakamoto.
When Bitcoin was created, a 21 million coin limit was implemented, ensuring scarcity and protecting against inflation, and for every 210,000 transactions mined, the reward for verifying new Bitcoin transactions is cut in half.
See also: The Race to the First Bitcoin ETF
Bitcoin is one of the few cryptocurrencies accepted as payment by companies such as Paypal, Microsoft, AT&T, and Tesla, with Bitcoin being most widely accepted as an alternative form of payment. Its biggest competitor at present is Ethereum.
Ethereum
Ethereum (ETH) is the second most widely traded cryptocurrency, with a market capitalization of $459 billion.
The Ether token that is carried by the Ethereum network is traded similarly to Bitcoin, but that’s where the similarity ends.
Ethereum it is not solely a cryptocurrency like Bitcoin. It is also a “smart contract” platform, which hosts programs that can run using the Ethereum blockchain. These programs can in turn send transactions over the blockchain, allowing for a marketplace of decentralized apps.
As such, Ethereum has fast become synonymous with “DeFi” or decentralized finance, a digital space where the crypto economy thrives. Investors can buy, sell, and trade on the Ethereum network.
Unlike Bitcoin, Ether currently has no supply cap.
Binance Coin
Binance Coin (BNB) was introduced in 2017 by Binance, the world’s largest crypto exchange. Binance Coin currently has a market capitalization of $101 billion.
First introduced as an Ethereum-based token, it was later moved to its own blockchain known as the Binance Chain Blockchain.
As such, Binance Coin is an incentivized method of payment within the Binance network: the crypto exchange offers a rebate for Binance Coin for signing up for membership.
The crypto asset is primarily utilized within the Binance exchange as an alternative way to pay fees incurred when trading on the exchange.
Binance Coin caps its supply at 200 million tokens. Binance plans to burn half this supply over time to combat depreciation of the token.
For more news, information, and strategy, visit the Crypto Channel.
Bitcoin or Ether: Which Crypto Is a Better Investment?
In almost every new industry, we have a ferocious rivalry: Microsoft vs. Apple, Uber vs Lyft, or Pepsi vs. Coke. And cryptocurrency is no exception.
Bitcoin (BTC) has the first-mover advantage and is the “face of cryptocurrency.” For many years, crypto never had a serious contender to compete with Bitcoin. Bitcoin held about 90% of the crypto market value in 2013, but the competition is heating up now.
It all started when a 20-year-old Russian-Canadian named Vitalik Buterin won a grant of $100,000 from the Thiel Fellowship. As a result, he dropped out of college and launched a platform that allows app development on the blockchain known as a “daap.” This platform is now called Ethereum (ETH). Ethereum shot up to become a serious competitor, and in only five months, captured a big chunk of the market share in cryptocurrency.
Here are the current market shares between these behemoth cryptos.
January 2021: Bitcoin held roughly 68% of the market cap versus Ethereum’s 10%
Bitcoin held roughly 68% of the market cap versus Ethereum’s 10% May 2021: Bitcoin held 42% versus Ethereum’s 19%
Three Key Differences Between Bitcoin and Ethereum
Keep in mind, Bitcoin and Ethereum are different. Ethereum wasn’t originally created to compete against Bitcoin. Rather, it was designed as a De-Fi platform. Almost by accident, the popularity of its platform drove Ethereum’s coin (Ether) to become the 2nd largest cryptocurrency in the world. Here are three key differences between both coins:
#1: Currency vs. Platform. Bitcoin established itself as a credible alternative to traditional fiat currencies. So, Bitcoin is a pure cryptocurrency that focuses primarily as a medium of exchange and a store of value.
On the other hand, Ethereum is built as a platform to run programmatic contracts and applications via its own currency: “Ether is a blockchain platform that functions like the Apple store or Android app store. Bitcoin is a commodity like gold, or a store of value,” said Pat LaVecchia, chief executive officer of Oasis Pro Markets.
#2: Security vs. Speed. Bitcoin is far slower than Ethereum in two key metrics:
42x Longer To Release Blocks. Ethereum block times are currently at about 14 seconds, compared to Bitcoin’s 10 minutes.
Ethereum block times are currently at about 14 seconds, compared to Bitcoin’s 10 minutes. 8x Slower Than Ethereum. A bitcoin transaction will show up in about 40 minutes, while it takes Ether about 5 minutes to complete a transaction.
Now, why is Bitcoin so slow? Well, security is Bitcoin’s first priority, and it is secure due to its coding language. Bitcoin uses C++ programming and is restricted to only 70 specific commands. This limitation makes it more difficult to hack the blockchain within these set commands. Ethereum is an evolving platform that is still finding its identity. For example, Ethereum 2.0 is expected to release this summer and will have completely different rule sets.
#3: Finite Supply vs. Infinite Supply. Bitcoin has a finite supply of 21,000. Once the supply is exhausted, that’s it. That’s why investors consider bitcoin as a store of value and investment against inflation. Contrary to Bitcoin, Ethereum offers an unlimited number of Ether but does cap the amount released each year.
The Case for Ether
Some investors love Ethereum because its platform is evolving to adapt to the current needs. If you invest in Ether, you’re betting on the future of its blockchain platform. Phil Bonello, director of research at Grayscale Investments, said: “Investors often look at Ethereum as a growth-type investment, making a bet on the continued development of the decentralized ecosystem built on Ethereum.”
Have you heard of NFTs? Of course, you do. Beeple auctioned off his NFT art, called “Everydays: The First 5000 Days,” for a mind-boggling $69 million. And where was the NFT hosted at? You guessed it. Ethereum is the blockchain that hosts NFTs like Beeple’s arts. What’s more, the record-setting NFT art was paid in Ether. NFT is just one example of Ethereum’s unlimited possibilities. It allows users to trade assets and borrow and lend money directly with one another without involving banks.
Alex Adelman, the CEO of Lolli, described Ethereum: “When people compare Bitcoin and Ethereum it’s a bit like comparing gold with electricity. They are both valuable but have very different uses. Ethereum is infrastructure. It is a blockchain that is in the early days but has the potential to revolutionize finance and technology.”
The Case for Bitcoin
As a crypto asset, Bitcoin is the undisputed leader. When people think of cryptocurrency, Bitcoin often comes first to the mind. This type of brand recognition is nearly impossible to penetrate, much like Advil owning the word of Ibuprofen. Big corporations such as Tesla, Square, and MicroStrategy hold Bitcoin on their balance sheets. Institutional support can provide more liquidity and more stable prices.
Jason Yanowitz, the co-founder of Blockworks, argues that Bitcoin holds a huge advantage as the standard currency. And he points out that there is no guarantee that Ethereum will hold its leadership in DeFi platforms: “Today, Ethereum powers most of the DeFi (decentralized finance) platforms, but in the near future, we’ll be able to build DeFi platforms on top of Bitcoin thanks to layer 2 solutions. Eventually, Bitcoin will become both the global standard of value and the monetary settlement layer of the world.”
The biggest drawback about Ether is that its currency relies on how prosperous Ethereum becomes. If the platform becomes unpopular, Ether’s value can decline.
Bottom Line
Arguably, Ether could have a bigger upside with its DeFi platform – which is only limited by developers’ imagination. But the risk is higher.
Bitcoin is the leader of cryptocurrency, and billion-dollar corporations prefer to hold Bitcoin as a store of value. Because of its first-mover advantage and brand recognition, Bitcoin can be considered safer than Ether. But keep in mind, all cryptos historically are volatile.
Cornerstone Macro analysts wrote to their clients: “Given that there are diversification opportunities among digital coins themselves, we should consider a small basket of them, rather than just Bitcoin alone, when we assess whether some allocation to crypto assets can reduce portfolio volatility alongside traditional assets.”
Instead of betting on one crypto asset, an investor can diversify its crypto portfolio with both Ether and Bitcoin.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.