As the last year has demonstrated, crypto can be incredibly volatile and risky. One moment, a cryptocurrency is on its way to the moon, and the next, it's crashing and burning.
Prices have started to rebound over the past several weeks, but many investors are still understandably cautious about the industry. And while cryptoassets will remain speculative and volatile investments for the foreseeable future, there are two options that could be a good fit for risk-averse investors.
1. Bitcoin
The grandfather of all cryptocurrencies, Bitcoin (BTC 0.52%), is by far the most well-known and widely held asset. It has a market cap of more than $459 billion, making up nearly 43% of the entire crypto sector.
Bitcoin's name recognition and first-mover advantage give it a substantial leg up over the competition. It's the most popular crypto among institutional investors and retail investors alike, and for those just dipping their toes in the water, it's hard to go wrong with a big name like Bitcoin.
At this point, Bitcoin is essentially the face of the crypto sector, and it will be tough for this industry to survive without it.
But Bitcoin also has a unique set of advantages. Many investors believe it will one day be used as a form of "digital gold," acting as a hedge against inflation. There will only ever be 21 million Bitcoin tokens in circulation, and that built-in scarcity should, in theory, increase its value over time.
While it's unclear at this point whether it will ever achieve that goal, it has managed to stay strong up to this point. Despite many major downturns and extreme volatility, the price of Bitcoin has soared by more than 4,000% over the last 10 years. If it does manage to succeed over time, this could be just the beginning.
2. Ethereum
Ethereum (ETH 0.32%) is the second-most-popular cryptocurrency behind Bitcoin, with a market cap of more than $197 billion. Combined, Bitcoin and Ethereum make up more than 60% of the total crypto market.
Ethereum is vastly different from Bitcoin, however. Ethereum is a smart contract platform with the ability to host decentralized applications (dApps). These dApps range from NFT marketplaces to DeFi projects to metaverse uses and more.
Also, because it's an open-source blockchain, developers can build new projects or host other cryptocurrencies on the network. If any of those projects or cryptocurrencies take off, it could potentially be lucrative.
In short, Ethereum is one of the most diversified cryptocurrencies, with its fingers in many different pots, so to speak. If NFTs, DeFi, the metaverse, or any other decentralized project becomes mainstream, Ethereum could thrive.
Which cryptoasset is right for you?
The crypto industry isn't necessarily a zero-sum game, so it's possible for both of these investments (and potentially many other cryptocurrencies) to coexist.
Bitcoin and Ethereum, specifically, fill different niches within the sector. Bitcoin can be used as a form of payment and a hedge against inflation, while Ethereum is leading the way in the dApp and smart contract space.
It's important to keep in mind, though, that the entire industry is still high risk. Nobody knows for certain whether crypto, in general, will survive over the long run. And even if Bitcoin and Ethereum do thrive over time, they're almost guaranteed to see a lot more volatility in the short term as the sector continues to find its footing.
That said, the crypto industry has loads of potential, and these two investments are among the safest in the field. If you're willing to take on a little more risk for the chance at earning potentially lucrative returns, Bitcoin and Ethereum might be smart additions to your portfolio.
