Bitcoin and Ethereum are the two most popular cryptocurrencies in the world. They both have a great use case and their price is likely to increase over the long term.
A lot of people have been asking though, in terms of price is it better to buy BTC or ETH?
In this article:The Bullish Case for Bitcoin
Due to Bitcoin’s hard monetary policy the narrative has started to form that Bitcoin is digital gold. Unlike fiat currencies like the Euro or the Dollar, no centralized authority can print more Bitcoin. There will only ever be 21 million BTC, hard stop.
A few decades ago, having a hard asset like Bitcoin might not have been quite so important. Governments and their central banks managed their currencies in a somewhat responsible fashion, and inflation was not a concern (at least after the 1970s).
Times have changed though, and in the last decade central banks have started printing money at a truly astonishing rate. For example, in the United States the Federal Reserve appears to believe that every problem in the world can be solved with… Money printing!
If you’ve got a hammer, everything looks like a nail.
The result is that the United States has increased its M1 money supply by 56% in 2020 alone! A trillion here, a trillion there, and soon enough you’re talking real money.
As if that’s not bad enough, given the macro environment it appears almost a foregone conclusion that the money printing will continue. The United States and Europe are spending more than they’re taking in from taxes. The result is that central banks have to print money to fund the deficits.
Money printing and fiscal irresponsibility are two of the major reasons that investors, everyone from the guy down the street to billionaires like Stanley Druckenmiller, are putting money into Bitcoin. As a hard asset, Bitcoin is far more effective at holding value than a fiat currency that can be printed at will.
Bitcoin can also serve as insurance against a collapse of the global financial system. There is so much debt and so much money printing that we can’t even say with 100% certainty that fiat currencies like the Dollar, the Euro, the Yen and others will survive. The Euro is probably the shakiest major currency, but it’s not like the dollar is perfect by any means. Then there are emerging market currencies, which are even more likely to fail.
Nobody knows what will happen in the next five or ten years, hence Bitcoin’s function as insurance. To summarize, you might want to consider buying BTC if you believe that,
- Central banks will keep printing money
- That currencies will fail and people will be looking for a non-sovereign asset to store their wealth in
- Bitcoin is superior to gold because of divisibility, portability and immutability
Next we’ll look at Ethereum. Although Ethereum will probably do well if Bitcoin does well, there are also some really interesting macro events that could prove to be quite bullish for ETH.
The Bullish Case for Ethereum
If Bitcoin is digital gold, Ethereum is the world’s decentralized computer. Anyone, regardless of where they live, can build on top of Ethereum. The following are some of the applications you can create with an Ethereum smart contract,
- A decentralized exchange like Uniswap
- Non-fungible tokens (one token or a group of tokens that cannot be copied). NFTs are useful for applications like digital art or virtual land ownership
- Smart contracts to streamline international supply chain tracking
- Decentralized lending and borrowing platforms
- Derivatives exchanges
- Stablecoins that can track the price of almost anything, from Dollars to Yen to gold
- And so much more!
Ethereum is highly programmable which means that you can create all sorts of applications. Furthermore, rather than starting from scratch developers can streamline the development process by linking existing protocols together. Ethereum has a huge developer community and dozens of popular Dapps.
Ethereum also recently released their Proof of Stake consensus mechanism. Investors can stake ETH and earn a return on their investment. Several astute market commentators have likened staked ETH to a treasury, since it’s essentially a risk-free way to earn a return.
Totally risk-free? No, there are always risks… However, there are risks associated with holding a treasury as well! So comparing staked Ether to a treasury does seem like a fair comparison.
What makes Ethereum valuable?
For one thing, Ethereum actually has a relatively hard monetary policy. Not as hard as Bitcoin’s monetary policy, that’s important to point out. However, is Ethereum’s monetary policy superior to the Dollar’s? Absolutely, especially as the Fed continues printing money.
What really drives Ethereum’s price though is the demand for Ether to power all of the smart contracts built on top of the blockchain. If you have a decentralized exchange, or a supply chain tracking application, you need ETH to pay for computations on that contract. The more smart contracts running on Ethereum, the more computations, the higher the demand for ETH.
So if you’re betting on Ethereum than you believe that,
- People and institutions will continue to build applications on top of Ethereum (hopefully at an accelerating rate)
- The Ethereum community will continue to support a hard monetary policy (Ethereum’s monetary policy is subject to change, unlike Bitcoin’s which is set in stone)
- There will be no major exploits, hacks or bugs which cause Ethereum to fail (Ethereum is more complex than Bitcoin)
BTC or ETH, Which Protocol Makes the Best Investment?
Most investors would probably benefit from being invested in both Bitcoin and Ethereum, in proportion to their belief in the protocol. For example, investors who are extremely concerned about money printing might want to put most of their money into BTC. On the other hand, anyone excited about the tremendous possibilities that Ethereum offers might want to be overweight ETH.
For example, Raoul Pal is quite outspoken about his belief that Bitcoin is going, “a lot higher.” He also believes that Ethereum will be successful, but believes that ETH is a riskier asset to invest in. Based on these beliefs, Raoul is allocated 80% BTC and 20% ETH.
Your ideal allocation will depend on your beliefs about which protocol you think will be the most successful in the coming months and years. Bitcoin is the oldest and most secure cryptocurrency, but ETH has more room to grow and if Ethereum achieves mass adoption it could offer higher returns.
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