Cryptocurrency investors can't just invest in crypto. There's no equivalent to the stock market's S&P 500 (^GSPC 0.05%) index yet, where you could buy an exchange-traded fund that represents the broad performance of the market. Instead, investors must pick crypto names by hand.
The largest and most popular choices are Bitcoin (BTC +0.06%) and Ethereum (ETH 1.47%). But which one of these industry-defining pioneers is the better buy right now?
Motley Fool contributors Dominic Basulto and Anders Bylund respectfully disagree on the answer to that question. Read on to see where you stand in this clash of classic cryptocurrency colossi.
Ethereum: The "digital oil" of the blockchain world
Dominic Basulto (Ethereum): For almost its entire existence, Ethereum has played second fiddle to Bitcoin. In the minds of many investors, Bitcoin is "digital gold," and there's no way that Ethereum can ever compete with that.
But there's one major advantage that Ethereum has over Bitcoin. Although the latter is by and large just a digital asset that you buy and hold for the long haul, the former is both a digital asset and a blockchain ecosystem.
That's not to say that developers aren't building on top of the Bitcoin blockchain, but all the real action is happening on smart contract platforms, such as Ethereum.
Image source: Getty Images.
When it comes to any new blockchain innovation, Ethereum is typically the first to market. For example, with non-fungible tokens (NFTs), blockchain gaming, decentralized applications, and decentralized finance (DeFi), Ethereum was the early pioneer. Yes, there have been a few duds along the way (does anyone still remember the first metaverse worlds built on top of Ethereum?), but by and large, new innovations occurring within this blockchain ecosystem have sent the price of Ethereum higher.
When you take into account Ethereum's future growth potential, you have to take into account how fast each of these vastly different areas of the blockchain world is growing.
CRYPTO: ETH
Key Data Points
Consider DeFi, for example. Ethereum's unique smart contract platform has resulted in tremendous value already being created.
Cathie Wood of Ark Invest thinks the real value-creation process is just getting started. She estimates that smart contract platforms, led by Ethereum, will create more than $5 trillion in market value during the next five years as they fundamentally reshape the face of modern finance. If you're keeping score at home, that's nearly five times the current market cap of Bitcoin.
Bitcoin might be the future of money, but Ethereum is the future of finance. While Bitcoin might be "digital gold," Ethereum is the "digital oil" that powers the blockchain world. Both are fantastic long-term investments, but there's a case to be made for Ethereum eventually surpassing Bitcoin in value to become the most valuable cryptocurrency in the world.
Bitcoin is the only serious choice for crypto-based value storage
Anders Bylund (Bitcoin): Don't get me wrong -- there's certainly a place for Ethereum in any serious crypto investor's portfolio. But the smart contracts pioneer is surrounded by hungry rivals, some of which come with clear technical advantages.
Meanwhile, I don't see a serious alternative to Bitcoin's value-storing (and building) function. A handful of challengers have come along, but none had any real staying power.
Given the network effect of Bitcoin's $1 trillion market value, it will be difficult for newcomers to steal market share from this proven platform. That's true even if someone comes up with a superior technical solution at this point.
It's too late to dethrone the king of digital currencies. Bitcoin is almost guaranteed to deliver tremendous investor returns in the years and decades ahead. Million-dollar price targets are common, and for good reason. Bitcoin is an inflation-proof digital currency that may disrupt financial markets over time, and these are the early days of that long-term revolution.
CRYPTO: BTC
Key Data Points
I'm not saying that all your cash should be converted into Bitcoin, of course. I won't go any further than "almost guaranteed" on its long-term return prospects. The digital currency may be safe from rival value-storage solutions such as Kaspa and Bitcoin Cash, but it faces other risks.
For instance, the blockchain has been safe and secure so far, but future technologies -- like a mature quantum computing system -- might break that security. Governments and regulators around the world have the power to help or hurt Bitcoin in the long run.
And what happens if Bitcoin prices don't rise in line with the halving-cycle history? The transaction-approval system could break down in that scenario. I'm just scratching the surface of a long list of real Bitcoin risks.
That's why I can't match the Bitcoin bullishness of maximalists like MicroStrategy Executive Chairman Michael Saylor. Under his lead, MicroStrategy is buying Bitcoin with cash reserves, borrowed money, incoming cash flow from the company's software business, and the occasional stock sale.
It's a great idea, as long as Bitcoin doesn't run into any of the potentially game-changing challenges I mentioned or new ones I haven't thought of yet. But Saylor's company could lose it all if something goes wrong. That's a risky example I don't want to follow.
There has to be some room for error here, and Bitcoin should represent a modest portion of your overall investment portfolio. But if I had to choose just one cryptocurrency to buy today and hold for the long haul, Bitcoin would be it. This cryptocurrency should be a healthy part of every balanced investment portfolio, especially in low-priced periods like today when the crypto is setting up for the next halving-based price jump.
