With the crypto market down a jaw-dropping 41% to $1.3 trillion year to date, this isn't a correction -- it's a crash. But while it's tempting to rush for the exits, this might turn into an opportunity for daring investors to scoop up quality assets at a discount. Let's explore why Bitcoin (BTC 0.01%) and Ethereum (ETH -0.41%) could make solid long-term bets.
Launched in 2009, Bitcoin is the cryptocurrency that started it all. And though its newer rivals have far exceeded it in terms of technical capabilities, its scale and name recognition should help it bounce back from cryptocurrency's confidence crisis stronger than ever.
Innovation has expanded the use-cases of blockchain technology. But it may have also increased investment risk. In May, the valuation of the stablecoin platform Terra collapsed by over 99% after the complex algorithms it used to control volatility failed to maintain its peg to the U.S. dollar.
But with a simpler design and a narrower use-case as a way to store and transmit value, Bitcoin is less vulnerable to such an unexpected system failure. And with 13 years of history, the platform is more established than other large crypto rivals, many of which launched in the last five years.
Bitcoin's relative maturity also gives it a decentralized ownership structure, with the top 10 holders only controlling 5.59% of the tokens in circulation. Decentralized ownership can help prevent large holders (aka, "whales") from manipulating the price of a cryptocurrency.
While Bitcoin was the first public blockchain, the Ethereum blockchain was the first to support decentralized applications (dApps) -- autonomous programs that use smart contracts to run on the network. Like Bitcoin, Ethereum enjoys industry-leading scale and trust -- along with an ambitious plan to stay relevant in the face of increasing competition.
With a transaction capacity of just 15 per second, Ethereum is slow compared to rivals like Solana, which can handle 50,000 transactions per second. But in this period of uncertainty, trust is arguably more important than raw technical prowess. With seven years of history, Ethereum has survived previous boom-and-bust cycles while maintaining its dominant position as the second-largest cryptocurrency and largest dApp ecosystem.
The developers aim to keep Ethereum relevant through "The Merge" -- an update that will transition Ethereum from a proof-of-work consensus mechanism (under which miners solve complex computational puzzles to verify transactions) to a proof-of-stake system in which miners will use existing coins to verify transactions. The Merge is expected to go live in the third quarter, and could reduce Ethereum's real-world energy consumption by over 99%.
Trust is important
Cryptocurrency as an asset class hasn't achieved full mainstream acceptance. But as the first movers in their respective niches, Bitcoin and Ethereum are significantly better established than their peers. Their scale and brand recognition could give both tokens a long-term edge -- especially in these challenging market conditions.