Ethereum Proving to Be a Solid Second Choice to Bitcoin
Cryptocurrency Ethereum could ultimately prove more lucrative than Bitcoin. Although it hasn’t been as popular the world’s number one crypto, investors are taking notice of its powerful financial technology.
By market value, Ethereum, also known as ether, is the second-largest digital coin behind Bitcoin. It’s easily the most credible and established alternative to the king of cryptos.
“It’d be easy to get wrapped up in Ethereum’s status as the second-largest digital asset and attribute its stunning rise — it’s more than doubled in less than two months — to bitcoin’s halo effect,” reports InvestorPlace. “That misses the mark because Ethereum is evolving in its own right and investors are taking note, indicating that there’s demand among crypto market participants for a legitimate alternative or complement to Bitcoin.”
Ethereum Use Cases Go Far Beyond Bitcoin
Ethereum, is an open-source, blockchain-based distributed computing platform that can support smart contract functionality.
That’s a complicated way of saying that Ethereum not only makes a cryptocurrency called ether possible, but can also support the launch of new cryptocurrencies and make it possible to crowdsource funding for new projects.
The simplest way to think about Ethereum is to compare it to something you probably use every day: your mobile phone. If you have an Android or iOS phone, you have apps that can perform a wide variety of functions from ordering an Uber to mapping a route across town.
What gives Ethereum an edge against Bitcoin is its implementation of smart contracts, which allows developers to run decentralized applications, or dapps, directly on the Ethereum blockchain. Although the possibilities for smart contracts are nearly endless, a few dominant use cases have emerged.
“Ethereum may never sport five-digit prices a la Bitcoin, but that doesn’t mean the number two crypto isn’t destined for big things,” according to InvestorPlace. “Do some quick research and it’s easy to find $2,000 price forecasts. From current pricing around $1,400, that target implies significant upside. Assuming Ether shows the ability to exceed those expectations and if the CME futures stoke institutional interest, this could easily be the “next big thing” in digital currencies even if it never sees $10,000.”
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Bitcoin vs. Ethereum: Which Is a Better Buy?
It’s no surprise that investors are interested in cryptocurrencies.
Bitcoin was first traded back in 2009. Back then, you could buy one of the new digital tokens for less than 1 cent. Prices steadily rose – albeit with some volatility over the years – and in January 2021 hit an all-time high of nearly $42,000. Ethereum debuted in 2015 at less than $3 and soared to more than $1,400 by 2018. At the time of this writing, Ethereum trades at slightly more than $1,300.
By comparison, General Electric Co. (ticker: GE) shares first hit $2.83 in 1995, adjusting for dividends and stock splits. Today, a quarter century later, it goes for about $11.
Although they’re the two biggest cryptocurrencies by market capitalization, 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 biggest considerations regarding the investment outlook for each cryptocurrency.
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Bitcoin
The de facto cryptocurrency leader, no other coin even comes close to Bitcoin, or BTC. At the time this article was written, the dollar value of all outstanding Bitcoin was around $625 billion. The total market cap for all cryptocurrencies is about $1.07 trillion, and the second-most valuable digital currency is Ethereum, with a market value in the neighborhood of $150 billion.
Here are some key things investors should know about BTC in the Bitcoin versus Ethereum investment debate:
1.Highest attention from large investors. The Winklevoss twins, the famous Harvard alumni who claim Mark Zuckerberg stole the idea for Facebook ( FB) from them, famously tried to start a bitcoin ETF, but they were rebuffed by the U.S. Securities and Exchange Commission.
While the SEC may not be wild about BTC, institutional investors have increasingly warmed to the idea, and in recent years the ability to trade Bitcoin futures contracts has helped formally induct the crypto as a widely accepted asset in the investing community.
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- Relative stability, simplicity and acceptance. A decentralized currency, beyond the grasp of the Federal Reserve or any other central bank and with a predefined maximum supply, is an attractive concept that people worldwide can resonate with. And in the case of Bitcoin, the market’s high opinions of that concept have been thoroughly tested and validated over time.
“Bitcoin is a scarce digital currency and store of value. While 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 for the last 10 years,” says Steve Ehrlich, CEO and co-founder at Voyager Digital, a cryptoasset broker.
Alex Adelman is the CEO and co-founder of Lolli, the first bitcoin rewards application allowing people to earn bitcoin while shopping online.
“We believe that bitcoin is a revolutionary currency that’s digitally scarce, that anyone in the world can participate in, which is unique to anything else,” Adelman says.
- Limited supply. There are only ever going to be 21 million bitcoin; that known limit to global supply is a core reason why some investors consider the cryptocurrency akin to digital gold. Unlike gold, however, newly discovered reserves aren’t possible, and nearly 90% of bitcoin, or 18.6 million, have already been mined.
The rate of new BTC creation also gets smaller over time through a process known as bitcoin halving, which cuts the pace of bitcoin creation in half every 210,000 block transactions. The last bitcoin halving was in May 2020; at the current pace, the next halving will be sometime in 2024.
[See: 10 Ways to Keep Your Cryptocurrency Safe.]
Ethereum
Before asking yourself " Should I buy bitcoin or ethereum?" you should understand the different motivations behind Bitcoin and Ethereum.
- Ethereum: a different goal than Bitcoin. The two leading cryptocurrencies have drastically different use cases and goals, with Ethereum itself operating as a decentralized network on top of which applications can be built. Many cryptocurrency tokens are actually issued over the Ethereum network.
“When people compare Bitcoin and Ethereum it’s a bit like comparing gold with electricity. They are both valuable but have very different uses,” Adelman says. “Ethereum is infrastructure. It is a blockchain that is in the early days 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 fields work has helped bring about its next characteristic.
- More development. Naturally, because Ethereum’s utility is only limited by the ingenuity of the world’s developers, there’s more activity surrounding the platform. Technically, the cryptocurrency used to facilitate Ethereum transactions is called “ether,” but it’s popularly referred to as ethereum.
Either way, the number of Github ethereum-related repositories is 247 to Bitcoin’s four. Repositories are similar to project folders where developers collaborating through Github can access project information.
- A fundamental change in how blocks are created. Instead of miners with the most computing power having the greatest advantage in successfully creating new tokens, those with the largest ownership stakes are now granted that right.
“Ethereum has been updated to mint new ETH through a process called proof of stake (PoS),” says Daniel Polotsky, CEO and founder of CoinFlip, a leading Bitcoin ATM operator. “With PoS, users are required to put up collateral, or a ‘stake’ in the form of ETH to become a validator on the network. So the more ETH that is staked the higher the value because there are fewer ETH in circulation,” Polotsky explains.
“In addition, proof of stake removes the costs associated with mining such as electricity and hardware costs, meaning that fewer ETH will be sold by miners. Instead, these ETH will be staked, driving up the value even further,” Polotsky says.
The growth of decentralized finance, or DeFi, is another extremely bullish catalyst for Ethereum. The concept is that traditional financial intermediaries like brokerages and exchanges are eliminated; this idea has enjoyed newfound mainstream relevance in recent weeks as some brokerages like Robinhood prohibited investors from buying stocks like GameStop ( GME) and AMC Entertainment ( AMC), among others.
[Read: The Best Bitcoin Wallets.]
Should You Buy Bitcoin or Ethereum?
When it comes right down to it, the ultimate debate between Bitcoin and Ethereum as investments comes down to an investor’s risk profile. Both are poised to perform well over time as the world becomes more digital and cryptocurrency’s acceptance grows. Bitcoin is the more mainstream and stable of the two, although the bullish sentiment among experts in the field appears to have only grown over the last year for Ethereum.
As with most investments, it’s possible Ethereum’s higher risk brings with it potential for higher rewards. In either case, it’s not 2009 anymore: Both currencies have sprinted past the proof-of-concept phase; it’s now time for investors who haven’t considered this asset class in the past to start taking both BTC and ETH seriously.
CEX.IO predictions for Bitcoin and Ethereum
Both Bitcoin and Ethereum saw a major surge on the 29th January
While Bitcoin’s growth comes as a consequence of it being mentioned by Elon Musk, ETH grew in correlation
Both coins have strong potential to go higher in 2021
Bitcoin price skyrocketed as the weekend approached
In January 2021, Bitcoin went through a lot, making for an action-filled start to the year. The first week was marked by strong growth, while the second week saw the coin hit a new all-time high and then crash by around $10,000. In the third week, the coin mostly traded sideways, which continued into the last week of the month.
On 29th January, the coin skyrocketed from $32,000 to $38,647 after BTC was mentioned by Elon Musk on Twitter.
Musk has had numerous interactions with the crypto industry in the past, and usually in his well-known joking manner. However, when the world’s richest man changed his Twitter bio to “#Bitcoin,” and also commented “In retrospect, it was inevitable,” the coin’s price started skyrocketing.
Bitcoin doesn’t stay still for long, and sooner or later, its price tends to coil up and push into new price territory. The only problem is that nobody knows which way it will go. Fortunately, it went up, although it did soon return to its former levels.
It is also likely that the recent GameStop short squeeze made people consider the crypto industry a bit more carefully. After all, the short squeeze did demonstrate how fragile and unfair the financial system can be. In a decentralised environment, the entire incident could have been avoided — including the censorship of WallStreetBets, a group that stood up in defense of GameStop.
A report by Glassnode CTO, Rafael Schultze-Kraft, noted that Bitcoin’s price inflows in the past 30 days leading to 25th January were bigger than its total market cap in 2017 as well as in 2019.
Schultze-Kraft also demonstrated how institutional interest in BTC is higher than ever, noting that in the first 28 days of 2021, there were around 26,000 BTC mined. Meanwhile, Grayscale holdings in 2021 have gone up by 40,000 BTC. “That’s who you’re selling to, when you’re selling now,” he added.
ETH price back to mid-$1300 levels after a brief dip
While Bitcoin was trading sideways last week, Ethereum saw a bit more activity. The coin’s price started with a rise from $1,220 on 24th January, to a new all-time high at $1,474 on 25th January. After that, the coin saw a correction that took it all the way down to $1,210, according to CEX.IO data.
It reached this low level on 27th January, which was followed by another growth to $1,375 only 24 hours later. The coin was just about to see another correction, when the Bitcoin and Dogecoin surge happened after both coins were mentioned by Elon Musk.
The rally that caused DOGE to surge by 420% and BTC to go up by 20% also caused a significant growth of ETH. It was brief, and as it turned out, only temporary. However, it did see ETH price surge up to $1,439. As the dust began to settle, Ethereum did see a correction, although only to $1,329.
Ethereum did not see many major developments over the past week, but it did see a new partnership of the Ethereum Foundation and Reddit. The two teamed up to boost scaling and resources, according to recent reports.
And, of course, its DeFi sector did continue to push upwards, as its TVL reached a new all-time high at $27.273 billion earlier today. Other than that, Ethereum’s high price is mostly a result of demand and expectations of the future surge, as the world still waits for Ethereum 2.0 to arrive in full.
Where will BTC and ETH go from here?
Bitcoin seems to have lost momentum somewhat over the past few weeks. Ever since it reached its ATH at $42,000, which was followed by a $10,000 drop, Bitcoin has been relatively calm. I believe, however, that the coin has more room to grow in Q1, and that it will hit $50,000 before the end of March 2021.
After that, we expect it to keep going to $80,000 by early summer. The summer itself will likely be a calmer period, when the coin will gather its strength for further growth, which will come as the year approaches its close. By the time 2021 comes to its end, We expect BTC to hit $90,000, as its stock-to-flow model indicates.
As for Ethereum, the coin has already exceeded our expectations, as we believed it would reach $1,300 by the end of Q1, when in reality, it managed to pass this level multiple times. Even now it sits above it, albeit only slightly. However, this might present the coin with a new opportunity, as we expect it to reach $2,000, and then at least $2,200 in Q2 of this year.
The real growth, however, is expected to arrive in Q4, when we expect ETH to surge all the way up to $4,900. The launch of Ethereum 2.0 will likely be crucial for this development.