It’s no surprise that investors are interested in cryptocurrencies. Bitcoin (BTC) was first traded back in 2009. At that time, you could buy one of the new digital tokens for less than a penny. Prices steadily rose — albeit with some volatility over the years — and in November 2021 BTC hit an all-time high of $68,990. The Ethereum network‘s native Ether (ETH) token debuted in 2015 at $2.83, eventually advancing to its own all-time high of $4,865 in November 2021.
Let’s put that performance in perspective. Even after a severe crypto market pullback in 2022, Ether was recently trading for around $1,888, which means it has advanced 667-fold in less than eight years.
[Sign up for stock news with our Invested newsletter.]
Contrast that with Apple Inc. (ticker: AAPL), the archetype of a fantastic stock and one of the best-performing equities of all time. The last time AAPL traded at one six-hundred-sixty-seventh of its current price was in 2003, some 20 years ago. Many stocks will never advance that much.
The math behind Bitcoin’s epic rise from its inception is obviously even more remarkable.
Aside from their rapid rises and their distinction as the two biggest cryptocurrencies by market capitalization, the similarities more or less end there. Bitcoin and Ethereum (Ether, or ETH, is colloquially referred to as 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:
— What is Bitcoin?
— What is Ethereum?
— What are the differences between Bitcoin and Ethereum?
— Bitcoin vs. Ethereum: The bottom line
What Is Bitcoin?
As the de facto cryptocurrency leader, no other coin even comes close to Bitcoin. As of May 4, the dollar value of all outstanding Bitcoin was around $559 billion. The total market capitalization
for all cryptocurrencies was about $1.19 trillion, and the second-most valuable digital currency was Ethereum, with a market value in the neighborhood of $227 billion.
Here are some key things investors should know about BTC in the Bitcoin versus Ethereum investment debate:
Highest attention from large investors. The Winklevoss twins, the famous Harvard alumni who claim Mark Zuckerberg stole the idea for Facebook — now Meta Platforms Inc. (META) — from them, famously tried to start a Bitcoin ETF, but they were rebuffed by the Securities and Exchange Commission.
While the SEC may not be wild about BTC, institutional investors have increasingly warmed to it. Bitcoin was the first cryptocurrency for which CME Group Inc. (CME) offered futures contracts in late 2017, allowing investors to wager on prices at specific dates in the future. In October 2021, ProShares Bitcoin Strategy ETF (BITO) launched, becoming the first SEC-approved crypto-based ETF.
While Ether futures would eventually launch on CME in February 2021, Bitcoin’s early dominance allowed it to gain institutional acceptance more quickly; there still isn’t an ETF that tracks the ETH price, even through futures contracts.
But it’s not just investors enjoying more access to BTC. Everyday consumers can earn Bitcoin via services like Lolli, the first Bitcoin rewards application allowing people to earn BTC back when shopping online. At one time an online-only rewards platform, Lolli has since expanded into brick-and-mortar shopping rewards with a feature called Card Boosts, which allows consumers to turn their everyday credit and debit cards into Bitcoin rewards cards when shopping at Lolli partners.
More than 10,000 vendors offer rewards via Lolli, including companies such as Nike Inc. (NKE), Walmart Inc. (WMT), Best Buy Co. Inc. (BBY) and McDonald’s Corp. (MCD).
But while these landmarks are impressive, perhaps the biggest endorsement of Bitcoin’s permanence is the fact that a handful of multibillion-dollar companies have bought Bitcoin to hold on their balance sheets.
Analytics company Microstrategy Inc. (MSTR) is the biggest corporate BTC holder. But in recent years, even better-known companies like Block Inc. (SQ) — formerly known as Square — and Tesla Inc. (TSLA) bought Bitcoin to hold in lieu of cash.
No major companies have publicly bought Ether to maximize returns on cash. With S&P 500 companies alone sitting on trillions of dollars in cash and short-term investments, the growing acceptance of holding Bitcoin on balance sheets has potential to be a massive catalyst for BTC.
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 around 92% of all Bitcoin, or nearly 19.4 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 transactions. The last Bitcoin halving was in May 2020; at the current pace, the next halving will be sometime in 2024.
What Is Ethereum?
Before deciding which cryptocurrency to buy, you should understand the different motivations behind Bitcoin and Ether, the native cryptocurrency of the Ethereum blockchain.
Decentralized finance and versatility. The Ethereum network is at the forefront of the still-nascent decentralized finance, or DeFi, area. Ethereum allows smart contracts to execute safe financial transactions. Smart contracts let decentralized applications run automatically on the blockchain when certain predetermined conditions are met.
The Ethereum network can be used for the creation and trading of non-fungible tokens, or NFTs. Users can also create decentralized apps that facilitate gaming, gambling and even the trading of other digital currencies.
Unlimited supply. Technically, the supply of ETH is unconstrained, and there are currently more than 120 million in circulation. That said, the 2022 Ethereum “Merge” should dramatically slow the creation of new tokens, and possibly even make Ether deflationary, with more of it being burned than created each year. Between January and May of 2023, the number of ETH in circulation has indeed declined, to the tune of about 2 million.
Time will tell how the circulating supply of ETH progresses but, unlike Bitcoin, there is no official cap on supply.
What Are the Differences Between Bitcoin and Ethereum?
Network utility. Some experts say that the comparison between Ethereum and Bitcoin is like comparing electricity with gold.
The argument is that there’s really no utility to Bitcoin other than being a store of value. The Ethereum network, on the other hand, brings virtually limitless possibilities. Other cryptocurrencies are issued on it, NFTs trade freely on the platform, and the entire field of decentralized finance was ushered in with Ethereum and its versatile ability to create smart contracts.
Ethereum’s high gas fees. One area where ETH definitely loses out to BTC, for the time being at least, is transaction fees. While Ethereum-based transactions tend to be far faster than Bitcoin transactions, there’s a steep cost that comes with that convenience, known as gas fees.
These gas fees, which compensate participants for validating transactions, can be outrageous, especially for smaller transactions.
While there are currently plans in place to increase scalability and reduce gas fees, as of 2023 the costs can still be prohibitive.
Skewed energy consumption dynamics. The newest difference between Bitcoin and Ethereum has arisen after the completion of the Ethereum “Merge” in September 2022. Previously, both cryptocurrencies used the proof-of-work, or PoW, mechanism to validate transactions and secure the blockchain. BTC still uses PoW, but Ethereum’s long-awaited Merge moved the network to a proof-of-stake, or PoS, mechanism.
One immediate implication for the Ethereum network is that its energy usage fell by more than 99% following the shift to PoS. One of the biggest criticisms of cryptocurrency at large has been its massive carbon footprint and high energy demand, an issue ETH has now directly addressed while Bitcoin has not.
Ethereum moving to PoS means that instead of using computing power to finalize the blockchain, validators must have a certain amount of Ether themselves to approve a block of transactions.
A capped vs. unlimited maximum supply. While the Merge is expected to dramatically reduce the amount of new Ether produced every year, the fact remains that there’s no hard limit.
Bitcoin vs. Ethereum: The Bottom Line
Ultimately, the debate between Bitcoin and Ethereum as investments comes down to an investor’s risk profile. Both have the potential to perform well over time as the world continues its shift to digital and cryptocurrency’s acceptance grows. Bitcoin is the more established and mainstream of the two, which makes ETH just a touch riskier.
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, and it’s time for risk-tolerant investors who haven’t considered this asset class in the past to start taking both BTC and ETH seriously.
More from U.S. News
ETF vs Mutual Fund: How to Choose for Your Investing Strategy
15 Best Dividend Stocks to Buy Now
9 Short Squeeze Stocks That Could Take Off in May
Bitcoin vs. Ethereum: Which Is the Better Buy? originally appeared on usnews.com
Update 05/04/23: This story was published at an earlier date and has been updated with new information.
