Leading cryptocurrencies exploded in value from the beginning of 2020 through the first half of 2021. Bitcoin (BTC +4.45%) and Ethereum (ETH +3.53%) have climbed 918% and 1,940%, respectively, over the last three years, but they have cooled off along with the stock market in recent months.
Growing interest from institutional investors and the high volume of transactions that Bitcoin and Ethereum are handling every day means these cryptos could reach new highs. Here's why the top two cryptocurrencies could double your money.
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Bitcoin
Bitcoin is down 30% over the last year. At its peak price, Bitcoin had a market cap of slightly over $1.2 trillion. Its market value is now $774 billion, or 42% of the value of all cryptocurrencies, so a lot of money needs to move back into Bitcoin for it to return to its previous high watermark -- and exceed it -- in order to double from its current level.
But I believe that's very doable. Despite Bitcoin's correlation with the stock market recently, it's increasingly being used as an alternative asset like gold. Wall Street banks are starting to expand their coverage of Bitcoin, which signals cryptocurrency is here to stay.
CRYPTO: BTC
Key Data Points
It's estimated that 140 million people own some Bitcoin. That far outstrips the current supply of 18.99 million coins, with the max supply set at 21 million. The high interest in Bitcoin coupled with a fixed supply provides a natural catalyst for higher prices over time.
Of course, it's impossible to pinpoint when Bitcoin will return to its previous high and double in value. But consider there's more than $10 trillion of global wealth sitting in gold. As Wall Street banks expand coverage, that will only help more alternative assets shift to "digital gold" and lift the price of Bitcoin with higher demand.
Image source: Getty Images.
Ethereum
While Bitcoin appeals to investors for its gold-like fixed supply, Ethereum is attractive for its growing utility value. It's a community-run blockchain that lets people without access to banks borrow money, send payments, and play games. It also supports the growing market for tokenized art collectibles, or non-fungible tokens (NFTs).
CRYPTO: ETH
Key Data Points
The growth of the NFT market -- the fastest-growing space within the digital economy -- explains Ethereum's sharp rise over the last few years. Since the end of 2020, Ethereum is up 292% compared to Bitcoin's return of 40%. The NFT market is expected to reach $80 billion in value by 2025, according to Jefferies, or more than double the estimate of $35 billion for 2022.
The price of ETH hit an all-time high of $4,867 in 2021, but it currently trades at about $2,840. Some investors are worried about increasing competition in the NFT space from the Solana blockchain, but Ethereum's network still commands an 80% share of the NFT market.
Solana has an advantage with its lower transaction fees, but Ethereum's upcoming upgrade to its platform could help neutralize that advantage. If all goes well with the upgrade, analysts believe the price of ETH could reach $4,000 to $8,000 near term.
Given Ethereum's lead in the fastest-growing space of the digital economy, I would give it the benefit of the doubt for now. But note that the competition in the NFT market makes ETH a higher-risk cryptocurrency to buy right now than Bitcoin. I own some Bitcoin and believe it's the best way to gain exposure to the cryptocurrency market, simply because it's the most widely held and has mainstream appeal. These factors provide a floor for demand that should support a higher price over the long term.
