Bitcoin‘S (CRYPTO: BTC) price has more than doubled in the past twelve months to a record high. Four catalysts drove this rally: the approval of Bitcoin’s first spot price exchange-traded funds (ETFs) in January, the latest four-year halving in April, the Federal Reserve’s two interest rate cuts, and Trump’s victory in the presidential election.
The ETFs have made it easier for mainstream and institutional investors to invest in Bitcoin, the halving reduced Bitcoin’s supply growth by halving mining rewards, and the Fed’s interest rate cuts will likely drive investors back to cryptocurrencies, growth stocks and more speculative currencies. investments. The new Trump administration is also expected to undo the Biden administration’s restrictions on the crypto market.
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All these tailwinds make the world’s best cryptocurrency an attractive investment right now. But as Bitcoin hovers near its all-time highs, investors may also consider investing in smaller cryptocurrencies that are still trading below their all-time highs. Let’s take a closer look Ethereum(CRYPTO:ETH)the second most valuable cryptocurrency in the world, to see if it currently fits the profile as a more attractive purchase than Bitcoin.
Bitcoin is a proof-of-work (PoW) token that must be digitally mined using power-hungry ASIC (application-specific integrated circuit) miners. It has a finite supply of 21 million coins, and almost 20 million of them have already been mined.
The difficulty of mining Bitcoin, which doubles with every four-year halving, is gradually slowing that process. The last Bitcoin will likely be mined by 2140. That scarcity makes it more similar to gold, silver and other precious metals than other cryptocurrencies.
Ethereum, which hosts ether as its own token, was once a PoW blockchain like Bitcoin. But in 2022, it switched to the more energy-efficient proof-of-stake (PoS) mechanism in a process called The Merge.
PoS tokens like Ethereum’s cannot be mined. Instead, investors “place” (or lock) their tokens on the blockchain to earn interest-like rewards. Unlike PoW blockchains, PoS blockchains also support smart contracts, which are used to develop decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets. Therefore, the value of ether is often tied to Ethereum’s popularity among developers, while Bitcoin is more often valued for its scarcity.
Ether has no supply limit and there are currently approximately 120 million tokens in circulation. It became deflationary after The Merge two years ago, but this year’s rate-lowering Dencun upgrade made it inflationary again. Ethereum investors try to limit its supply by periodically burning (removing from circulation) many tokens, but that process is not as predictable or transparent as Bitcoin’s scheduled halvings.
Ethereum’s price has risen more than 50% over the past twelve months, but has underperformed Bitcoin and remains about 40% below its all-time high. Ethereum’s first spot price ETFs were approved and started trading in July, but they didn’t generate as much buzz as Bitcoin ETFs. Ether also didn’t seem to attract as many bulls as Bitcoin when rates fell, but it rebounded alongside Bitcoin and the broader crypto market after the presidential election ended.
Ethereum appears to be held back by two near-term challenges. First, Ethereum faces stiff competition from newer and faster PoS blockchains Solana (CRYPTO: SOL) And Cardano(CRYPTO:ADA). Second, growing supply slows down price growth.
But there could be other long-term headwinds. Ethereum’s next upgrade, ‘The Verge’, will improve security features and lower hardware requirements so it can run on smaller devices such as smartwatches and Internet of Things (IoT) devices. UBS(NYSE:UBS) also recently launched its first tokenized fund on the Ethereum blockchain, suggesting it is still a more stable PoS platform than Solana or Cardano.
Some bullish investors expect Ethereum to rise. VanEck’s Matthew Sigel and Patrick Bush expect the price to quadruple to $11,800 by 2030, while Ark Invest’s Cathie Wood thinks the price could rise more than 5,600% to $166,000 by 2032.
Personally, though, I think it’s still smarter to buy Bitcoin instead of Ethereum. Bitcoin is like digital gold, so its value should stabilize and rise against most fiat currencies. Ethereum tokens are still inflationary, its supply is unlimited, it cannot be mined, and its future value will largely be determined by Ethereum’s usefulness to dApp developers and financial institutions. Ethereum’s price could continue to rise, but I doubt it will consistently outperform Bitcoin for years to come.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.
Should You Forget Bitcoin and Buy Ethereum Instead? was originally published by The Motley Fool
