Is Bitcoin better than Ethereum? Or is Ethereum better than Bitcoin? Should I invest in Bitcoin or Ether? BTC or ETH? What are the Differences between Bitcoin Vs Ethereum? Which Crypto Is a Better Investment: Bitcoin or Ether?
All these questions have a common theme.
They ask about which of the 2 cryptos Bitcoin or Ethereum is better to invest. And why not? After all, Bitcoin (BTC) and Ethereum (ETH) are the world’s top cryptocurrencies in terms of the total market cap* and also, the torchbearers of the cryptocurrency world.
*Infact, many major companies of the world have smaller market caps than Bitcoin and Ethereum. And very recently, Bitcoin alone crossed a market cap of $1 Trillion!
Before one gets into the crypto space, it’s all about Bitcoin. People know that Bitcoin is the cryptocurrency and cryptocurrency is Bitcoin. But once you delve deeper, it becomes obvious that there is more to cryptos than Bitcoin itself. And then it becomes very easy to get confused when choosing between BTC and ETH for investing.
Both Bitcoin and Ethereum have turned out to be super good bets for the last few years. Returns have been astronomical and have made many crypto Billionaires and Bitcoin Crorepati in India too.
But what about the future?
Which is better Bitcoin or Ethereum 2022? Or if you are a long-term investor looking to HODL for several years, then you may ask, Is Ethereum better than bitcoin? And if yes, can Ethereum go higher than Bitcoin and what will Ethereum be worth in 2030? Or if you are bullish on Bitcoin and planning to hold, then you may be curious about what will Bitcoin be worth in 2030?
Before we get ahead with our discussion about Bitcoin Vs Ethereum, let me remind you of something important.
Anyone who wants to invest in the cryptocurrency market should acknowledge the risks associated with volatility. Bitcoin crashes are common. Up to 80% at times. So if you are not sure, then this isn’t the place for you. If you want to get in, start small. Or rather start very small. And then gradually scale it up to something like 1% of your portfolio (as we talk about later too). And it’s better to hold a long-term view of the market. Anything beyond that should be done only when you begin doing your research (diligently) and really begin to get a grasp of this so-called world-changing space. Don’t be too adventurous.
Now let’s get down to business.
I will try to make this discussion as less technical as possible. If you are a technically oriented guy, then you do not need my views honestly. I am sure you know and understand more than me. I am just here to deliberate on the future of the 2 largest cryptos and their role and allocation in one’s long-term portfolio.
Bitcoin Vs Ethereum (BTC Vs ETH) in 2022
Note – I am learning about this space myself. I am not an expert. I am just as few people put it, a crypto-curious person. So in a bid to properly explain few things, I may replicate exact texts from few things that I have read over a period of time. The intent is not to plagiarize but to choose the simplest possible words to explain. In case I miss giving due credits, please accept my apologies. It was sincerely unintended as I have copied few extracts from my rough personal notes.
So first things first,
Bitcoin and Ethereum aren’t exactly currencies. Bitcoin and Ethereum are crypto-networks that use BTC (or popularly called Bitcoin) and ETH (or Ether) as currencies used to reward participation in the respective networks.
Bitcoin was created as an alternative to fiat currency. It means it was planned to act as a medium of exchange and store of value. Ethereum on the other hand is a platform to create programmable contracts and decentralized applications with its own currency Ether. Both are based on blockchain technology, which in simple words is a sort of unique database. You can read a simple explanation here and a bit more detailed one here.
Unlike Bitcoin, Ethereum lacks celebrity fanfare (like Elon Musk’s tweets) and mysterious beginnings. No one exactly knows, who Satoshi Nakamoto is. But he or she or they started the Bitcoin revolution with the paradigm-shifting Bitcoin whitepaper about a decentralized technology that creates a trustless, permissionless system and eliminates the problem of double-spending. This new technology took the tech world by storm. Ethereum on the other hand had a more transparent beginning. Vitalik Buterin created the Ethereum network in a transparent and non-secret manner (he went on to become the youngest crypto Billionaire at the age of 27). If interested, this is his original Ethereum whitepaper.
Bitcoin is majorly a payment-focused cryptocurrency. Bitcoin is not just a medium of exchange to facilitate commerce, but a monetary system that is completely different from the traditional centralized monetary system. Unlike fiat currencies, which have an unlimited supply and are affected by social, political, and economic factors, Bitcoin’s supply is fixed at 21 million coins. Further, due to the Bitcoin Halving mechanism integrated into the Bitcoin blockchain, which cuts the supply for new Bitcoins and rewards miners by half every four years, it makes Bitcoin scarcer and a deflationary asset class.
Ethereum is a global computing network that runs on the Ether (ETH) cryptocurrency. It is more utility-based and primarily about boosting the reach and applications of the blockchain through its smart contract functionality. The vision for Ethereum is also broader. The ultimate goal is to create a decentralized internet, running on many small computers around the globe, rather than relying on third parties like Microsoft, Amazon Google. So unlike Bitcoin (BTC), Ethereum is much more than just a cryptocurrency. The enabling of smart contracts opened the path for many other cryptocurrencies and ICOs to be built on its framework. This is one of the main reasons why the perceived potential of Ethereum is pretty huge among its believers.
Please keep in mind that both Bitcoin and Ethereum are meant to be different. It’s not like Ethereum was created to compete against Bitcoin. Rather, it was designed as a De-Fi platform. And knowingly or unknowingly, the popularity of the Ethereum platform drove Ethereum’s coin (Ether or ETH) to become popular and climb up the market cap ladder to become the 2nd largest cryptocurrency in the world.
Bitcoin gradually intends to establish itself as a credible alternative to traditional fiat currencies. So the focus is primarily to be a medium of exchange and a store of value. Ethereum, on the other hand, is built as a platform to run programmatic smart contracts and applications via its own currency ETH. In a manner of way, you can look at it as functioning like the Android app store or the Apple store.
Bitcoin is the undisputed leader in the crypto-assets space. Many billion-dollar corporations like Tesla (details), Square (of Twitter – details) and MicroStrategy (details) have invested in Bitcoin in a serious manner and prefer to hold Bitcoin as a store of value. So because of its first-mover advantage and brand recognition, Bitcoin can be considered comparatively safer than ETH. On the other hand, Ethereum is still isn’t the favorite of institutions, atleast publically and significantly. Ethereum is looked at as a growth-type high-risk evolving investment that is about making a bet on the continued development of the decentralized ecosystem built on Ethereum. This is fine. But there is a possible drawback to this. Ethereum’s native currency Ether (ETH) relies on how prosperous the Ethereum ecosystem becomes eventually. If it does, then ETH will go up. A lot. But if it doesn’t, then Ether’s value can decline too.
So to be fair to both, there is a good bullish case for Ether as well as for the king, Bitcoin.
Many think that Bitcoin is an incredible first-generation product, but is becoming primitive relative to other, newer crypto projects. Others think that the stability and the vintage of Bitcoin compared to other cryptos is what will work for it in the long term.
But I don’t think that the question Which will win Bitcoin or Ethereum? makes any sense. It’s not about EITHER / OR. It can very well be about AND. Both BTC and ETH cab complement each other and can be part of the crypto ecosystem. That is, both can win. Just like Facebook and Google together survive in the jungle of network effect, occasionally poking in each other’s territory. Both are innovative and paradigm-defining decentralized computational networks that have made engineering trade-offs that make them good for some use-cases and bad for others. It is said that Bitcoin trades flexibility for security, while Ethereum trades security for flexibility. Both are valuable and worth paying for in different use cases.
That is about the non-technical comparison of Bitcoin and Ethereum. But since we are talking about from an investment perspective, how does one value Bitcoin or Ethereum.
It’s not easy. Really.
Many have tried to value them. But due to lack of underlying assets or cash flows or anything, it can’t be valued through traditional valuation methods the way we value equities (stocks) and debt instruments.
Bitcoin is often compared to Gold (Read Is Bitcoin the New Gold?). There is a very interesting Bitcoin price prediction model named Bitcoin Stock-to-Flow Model being used by many crypto enthusiasts and investors. If you are curious, you can read about it here and here. Till now, the model has been remarkably accurate in predicting Bitcoin’s future price. And if the model remains accurate in years to come, then seemingly, there is a lot (and I mean huge) upside to Bitcoin’s market cap. I strongly suggest you check out this model in your spare time. But it must also be said that there is no guarantee that the model will continue to work correctly forever. So don’t rely on it blindly. For an alternative set of valuation methodologies, do check this detailed document from the CFA Institute here (or download it directly from here).
And we are no doubt focusing on Ethereum Vs Bitcoin, but what about other cryptocurrencies or Altcoins?
Both Bitcoin and Ethereum have very different purposes. In fact, several other cryptocurrencies or Altcoins are a lot similar to Bitcoin and Ethereum than Bitcoin and Ethereum are compared to each other!
My general view is that from amongst the 10,000+ cryptos that are in existence as of now, very few will eventually survive. I may be wrong. Its possible the Altcoin is full of cryptos that can be the Next Bitcoin of future. But
I have written about Altcoins in detail elsewhere. So if you are interested, then do read Which crypto ALTCOIN to invest than Bitcoin?
As for the question “Is Ethereum next Bitcoin? Or Could Ethereum overtake Bitcoin as the world’s leading cryptocurrency? – I think it has the potential and frankly, it is anybody’s guess. But maybe Bitcoin remains what it is and Ethereum continues to carve a niche for its own. Just like the FAANG companies of Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG).
Coming back to the discussion of Ethereum and Bitcoin, many famous tech titans and investors are bullish on both currencies.
- Jack Dorsey, the co-founder of Twitter and Square, is extremely bullish on the future of Bitcoin. He has also put on record that “Bitcoin changes absolutely everything” and said that “I don’t think there is anything more important in my lifetime to work on.”
- Billionaire investor Ray Dalio has disclosed that he owns ‘some’ Bitcoin but is also a bit cautious about its future. He says that “Bitcoin’s greatest risk is its success because if it’s successful, the government will try to kill it and they have a lot of power to succeed.” And that is true as many governments are still too skeptical about the entire cryptocurrency phenomenon that has suddenly pounced on them unexpectedly. He also said that its possible that in the future a “better alternative” to Bitcoin will come along and displace it. Kind of a Next Bitcoin “because that is the way the evolution of everything works.” You read the detailed note of Ray Dalio on his website here.
- Then there is the head of MicroStrategy Michael J. Saylor who publically endorses Bitcoin and has invested Billions of dollars from his company’s treasury in Bitcoins. In fact, the company’s site has a section (microsite) dedicated to Bitcoin that has some good resources for those interested in learning more. Here is the link.
- Given the limelight that Bitcoin gets, at time Ether gets sidelined. But increasingly, ETH too is getting some interest and investments.
Talking of investments, Bitcoin still attracts more. Many cryptocurrency ETFs and funds hold a majority in Bitcoin (50%-70%), followed by 15-25% in Ethereum and rest in a portfolio of Altcoin assortments.
Further Reading – Should you hold Bitcoin Ethereum for 10 years?
Unless the crypto market matures more, I think the main drivers of Bitcoin price will be the continuation of cryptocurrency adoption among the wider audience and instabilities in the altcoin market (to which Ethereum also belongs). The price of Ethereum will be dependent on the demand for its smart contract functionality from the startup community and stability in the altcoin market in general.
But if you are curious by nature, then I definitely recommend you to study more about the differences between Ethereum and Bitcoin and how it is panning out for the cryptos as a whole. It’s interesting irrespective of whether you decide to invest in cryptocurrencies or not.
Further (Important) Reading – Do you need to invest in Bitcoin & Ethereum?
There is another angle to crypto investing.
Bitcoin is more like an obsession for many. It tends to become a part of your identity as people tend to relate to its ‘against-the-establishment’ origins. As the billionaire Mark Cuban said once, Bitcoin is ″more religion than solution to any problem”. In fact, Bitcoin aficionados have their own set of jargons like HODL (not Hold), Whale (what is Bitcoin whale?), FUD and a hilarious but aspirational one When Lambo? And social media plays into this obsession of many. But I would say don’t get too attached to it. You don’t want to put money on the basis of some random obsession of yours, isn’t it?
Sop all said and done, how does one go about choosing in Bitcoin Vs Ethereum?
But why choose?
It’s very simple. We have a limited amount of money (sadly). So the money allocated to Bitcoin cannot be allocated to Ethereum and vice-versa. So you need to decide where you want to put your money. It will decide how much return you eventually generate.
In almost every new industry, we have ferocious rivalries like Microsoft vs Apple, Pepsi vs. Coke, etc. And cryptocurrency is no exception. Bitcoin Vs Ether is the big one. Bitcoin had the first-mover advantage and for initial years, there was never a serious contender to Bitcoin’s dominance. But the competition is heating up now and Ethereum is trying to dislodge Bitcoin from the top. The term associated with this is Flippening – a hypothetical scenario where Ethereum (ETH) overtakes Bitcoin’s (BTC) market cap.
But I think one can choose both and allocate accordingly.
Is Ethereum better than Bitcoin? It’s possible.
Is Bitcoin better than Ethereum? It’s possible too.
So maybe, just maybe, instead of choosing one it’s better to diversify between the two (and few others if you wish) based on your view of their potential.
I have written about it in detail in the post How to split portfolio between Bitcoin and Ethereum?
Since diversification opportunities are available among digital assets, it might be better to take the basket approach. Instead of betting on just one crypto asset, an investor can diversify the crypto portfolio with both Ether and Bitcoin.
I am still learning about cryptocurrencies and exploring them out of curiosity. But here are my thoughts and suggestions for how to split your crypto portfolio and do your crypto portfolio allocation:
- Put a large percentage of your portfolio (40-70%) in Bitcoin (BTC). Plain and simple. It is the most established crypto out there and compared to the rest of the space, much less risky. It’s also the one that decides which the market is headed given its high dominance.
- You can then put 30-50% in Ethereum (ETH).
- In fact, the 50% Bitcoin + 50% Ethereum is the simplest diversified cryptocurrency portfolio that you can build. This is a reasonably good choice given that both are among the two largest digital assets by market capitalization and are also the most liquid ones.
- Once these 2-piece of the crypto portfolio jigsaw are set, then you invest in Altcoins for 0-20% of your portfolio. The space is not easy to pick from, to be honest, unless you really understand the technical workings of each of the altcoins you plan to pick from 10,000 plus of them. But nevertheless, spreading it across 5-10 (or max 15) crypto altcoins can be considered. Remember, some of these will go bad. Some will do ok. Some might do very well.
- Don’t think about putting Rs 1 lakh in 100 cryptos with Rs 1000 each. Instead, put Rs 60-90,000 in Bitcoin + Ethereum and the remaining money in 5-15 other Altcoins. You can even do SIP in Bitcoin if you are uncomfortable investing in one go.
Some think Ethereum will win out over Bitcoin in the long term. Others think Bitcoin will continue its supremacy. So what’s more of a worthy long-term investment? Bitcoin or Ethereum? For average investors, it’s better to diversify and invest in both.
There are no Crypto ETFs or Crypto Mutual Funds in India as of now. Else it would have been very easy to take exposure across Bitcoin + Ethereum and other Altcoins.
Here are 2 sample portfolios from two of the largest crypto index funds operating outside India (Image source: Bitwise 10 Crypto Index Fund & Bitwise DeFi Crypto Index Fund):
Related reading – Bitcoin Vs Mutual Fund in India
By the way, here we are discussing diversifying your cryptocurrency portfolio between Bitcoin, Ether and other Altcoins. But how much portfolio % should be cryptocurrencies in your overall portfolio?
I have written about it in detail at How much portfolio percentage to invest in Cryptos?
I would say start with a few thousand Rupees first. Once you begin learning about it, you can increase your allocation to say 1% of your overall portfolio. But what if you are one level up from just being a crypto-curious person? Then it’s said that you can have up to 5% in crypto assets in your portfolio. But anything more than 5% I think should be reserved for true experts. And this is once we have clarity about the answer to the question Is Bitcoin legal in India?
Remember, cryptocurrency investments are not for everyone. Each person needs to make their own decisions. While the risk-reward proposition appears to be asymmetric and it does seem like a lottery ticket at first, the fact is that any asset that poses a high probability of total loss should be discounted heavily when considering a portfolio allocation. As this interesting take (link) says – Ultimately, investors need to think about how to minimize regret and maximize solutions. For many, owning Bitcoin simply may not make sense. Ask yourself: How will I feel if the bullish case for Bitcoin plays out and I don’t own any? How will I feel if I own Bitcoin and it goes to zero? Balancing between these two emotions is critical. Further, ensuring that the amount you put at risk won’t change your financial future, your lifestyle, or your mental health is paramount.
Starting from a 1% allocation (or lower) isn’t going to materially harm the investor. The worst-case scenario is losing the entire 1%. And that will not derail the investor’s financial goal planning or stop them from achieving their financial goals.
That’s it about Ethereum Vs Bitcoin. I hope it wasn’t technical to bore you. As you might have understood, as of now, Bitcoin is the king. But which will be the No.1 Cryptocurrency in the future, it’s anybody’s guess. Will Ethereum beat Bitcoin in the future? Possible. Can Bitcoin continue to remain in its top slot? Possible. Is it possible that some other Altcoin beats both Bitcoin and Ethereum? That is possible too. As a result, it’s only logical to diversify your investments.
And just because everyone is doing it doesn’t mean you too have to do something. Everyone-does-it is not an investment strategy. Think for your own self. Follow the 10th Man Rule followed in Israel.
But enough about this discussion on Bitcoin or Ethereum 2022. The debate about ETH vs BTC in long term will continue I am sure.
I hope you found this discussion on Bitcoin Vs Ethereum: Which Is Best For Investment? useful.
I know you are looking for crisp answers to questions like Ethereum vs. Bitcoin: Which Is the Better Buy? and Bitcoin or Ether: Which Crypto Is a Better Investment? There are a lot of differences between Bitcoin and Ethereum. But to answer questions like Is Ethereum better than Bitcoin OR Can Ethereum go higher than Bitcoin OR Is Ethereum more important than Bitcoin, you will eventually have to figure that out yourself. As an Indian small investor, you might need to study the crypto market in a bit more detail. And only then, you will figure out Bitcoin vs. Ethereum: Which crypto is the better 2022 investment?