If you could hold only a single crypto in your portfolio, what would it be? Most people would probably answer Bitcoin (BTC 0.20%), and for good reason. Bitcoin is not only the best-known and most popular crypto but also often the benchmark to which all other cryptos are compared. In terms of market capitalization, Bitcoin has always loomed far above its rivals.

So, is it possible that Ethereum (ETH 0.36%) might actually be better than Bitcoin as a long-term investment? For years, Ethereum has played second-fiddle to Bitcoin. However, there are several key reasons Ethereum could now be a superior long-term buy. Most importantly, the technological platform powering Ethereum is about to get a major upgrade.

The Merge

If there is only a single reason to rethink your investment thesis about Ethereum, it has to be the Merge. This is the much-promised moment when the Ethereum blockchain finally converts from a proof-of-work to a proof-of-stake consensus mechanism. In layman's terms, it means that Ethereum will soon be running on a superior technology that will make it possible to do everything on the Ethereum blockchain faster, cheaper, and better.

Person at home office checking investments on mobile phone and laptop.

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In contrast, Bitcoin remains mired in its energy-intensive, low-throughput, proof-of-work mining technology. By some accounts, the July crypto rally has been driven by optimism about the Merge expected in September, and for good reason.

Real-world utility

Which brings us to the second reason Ethereum is a better long-term buy than Bitcoin. Quite simply, there is more real-world utility to Ethereum than Bitcoin. Developers have created non-fungible tokens (NFTs), smart contracts, and decentralized finance (DeFi) protocols, all of which run on top of the Ethereum blockchain. There is an entire ecosystem around Ethereum that doesn't exist with Bitcoin.

Granted, Bitcoin may have more avatars on social media trying to pump it higher, but Ethereum has more developers, entrepreneurs, and IT professionals bringing to life real-world applications. You can use Bitcoin to pay for transactions or sit on it as a long-term store of value, hoping it increases in value as a result of digital scarcity. But due to its underlying technological infrastructure, Bitcoin is much more limited than Ethereum.

Changing investment narratives

And that leads us to the final reason Ethereum is a better long-term play than Bitcoin: The whole investment narrative surrounding Bitcoin is starting to fall apart. Until the market meltdown this year, the basic argument for holding Bitcoin long-term was that it was uncorrelated to traditional investments such as stocks. In other words, even if the overall stock market tanked, Bitcoin wouldn't. In this regard, it would act like "digital gold." It would have intrinsic value when everything else was melting down.

As more investors began to think of Bitcoin as "digital gold," it only made sense that people would want to hold BTC during any crisis or downturn. But what happened during the latest market downturn? Bitcoin fell just like every other cryptocurrency and, in some cases, harder and faster. So some of the allure around Bitcoin as "digital gold" is starting to fade.

At the same time, the shift to a proof-of-stake mechanism as a result of the Merge will transform ETH into a deflationary asset, further increasing its attraction as a possible inflationary hedge. Moreover, due to the way staking works, a growing amount of ETH will be "locked up" and unavailable for trading. This will naturally drive up the price of ETH, based simply on the principle of supply and demand.

The future is being built on Ethereum

As if that weren't enough, a growing number of high-profile companies around the world are building on top of the Ethereum blockchain. Quite simply, due to its flexibility and scalability, Ethereum is becoming the blockchain of choice for large institutions. If Bitcoin is "digital gold," Ethereum is "digital oil." In the long run, Ethereum will be the more valuable crypto because it has more practical uses.