As a module of the overall quality flight, crypto investors will continue to focus on Bitcoin or Ethereum in 2023. Crypto expert Dominic Basulto gives a head-to-head comparison of the pros and cons.
Bitcoin or Ethereum together make up 60% of the market
The crypto market, as everyone knows, is volatile. However, Bitcoin and Ethereum are the two best options for crypto investors seeking relative security. Bitcoin and Ethereum have the longest history. They also have a proven ability and deep liquidity to handle market cycles. Together, these two cryptocurrencies make up around 60% of the total crypto market cap.
And as Coinbase Global points out in its new 2023 Crypto Market Outlook Report, the situation will likely stay the same for next year. According to Coinbase, investors will continue to flock to Bitcoin and Ethereum in 2023 as part of an overall flight to quality during a strong macroeconomic period. If you still have to choose, which one is better for your portfolio?
The primary attraction for investing in Bitcoin is, of course, the potential for astonishing long-term portfolio returns. In the period from 2011 to 2021, Bitcoin was the smoothest performing asset in the entire world. Accordingly, it provided an annual return of 230%. That dwarfed even the yields of risky, fast-growing tech stocks by a factor of 10. Past returns are not necessarily guarantees of future returns. We saw this clearly in 2022. However, this breed’s track record is certainly attractive. In two of these years, Bitcoin has performed really badly (down 58% in 2014 and 73% in 2018). This gives me hope that it can overcome a dire 2022, when Bitcoin drops by about 65%.
From a long-term perspective, Bitcoin is also attractive as a one-on-one form of online payment. Amid all the talk about a ‘cashless society’ and the introduction of new central bank digital currencies (CBDCs) globally, the demand for digital currencies is clearly growing. And of all the major cryptocurrencies, Bitcoin has the smoothest bet to profit from this secular trend. Currently, the number of ways to pay with Bitcoin is limited. However, some financial experts predict that soon, customers will be paying for everything online with Bitcoin. Once that happens, Bitcoin will become even more valuable.
Ethereum looks equally attractive based on future growth projections. Currently, the Ethereum Blockchain serves as the base layer for rapid innovation in areas such as smart contracts, decentralized finance (DeFi), gaming, metaverse, Web3, and Non-Fungible Tokens (NFT). This has led to the creation of a very vibrant ecosystem for Ethereum users and developers. Some of the most expensive cryptocurrencies are, in fact, tokens created on top of the Ethereum Blockchain.
It is also useful to look at it from a portfolio diversification perspective. This growth in many different areas of the blockchain and crypto space certainly provides a measure of security and much needed diversification. Yes, the NFT market is crashing right now. But the game and metaverse segment is ready to rise. Investing in crypto is always risky. However, there is less risk involved as Ethereum is very well diversified.
The risk, however, is that Ethereum has become such a leader in the blockchain space that other competitors are always emerging to challenge it. Rival Tier-1 Blockchains such as Solana and Avalanche are still referred to as potential ‘Ethereum killers’. Because they have high speeds, low process costs and superior scalability. Ethereum successfully transitioned to a proof-of-stake blockchain this year with Merge. This will help relieve some of the anxiety. Merge will make Ethereum faster, more scalable, more robust against network disruptions. It will also make your competitive ditch more capable of defending.
Bitcoin or Ethereum?
Choosing in the middle of Bitcoin or Ethereum may seem to be choosing in the middle of two favorite children. But if I had to choose, I would choose Bitcoin. In part, this has to do with the historical returns Bitcoin has provided over time. Over its entire lifetime, Bitcoin has delivered an incredible 16,531.8% return to investors. And it has survived at least five crypto-bear market cycles that have skyrocketed each time.
In my opinion, Bitcoin has one overlooked advantage over Ethereum: regulatory clarity. There is tremendous speculation about the regulatory outlook for crypto right now. However, (especially after the FTX crash), Bitcoin is in a much better position than Ethereum to weather the storm. For example, the Securities and Exchange Board (SEC) has essentially stated that Bitcoin is a cryptocurrency, not a security. In response, he suggested that Ethereum could now fit the securities description.
However, either way, you simply cannot go wrong with Bitcoin or Ethereum. As Coinbase points out in its 2023 crypto market outlook report, both have attractive market liquidity, sustainable tokenomics, and mature ecosystems. This will continue to make both attractive investment destinations for investors seeking quality amid macroeconomic uncertainty.