Bitcoin (BTC +5.04%) and Ethereum (ETH +5.91%), the world's two most valuable cryptocurrencies, both shed about 30% of their value over the past 12 months. That downturn can be attributed to high Treasury yields, expectations of slower monetary easing, waning institutional interest, and leveraged liquidations triggering further waves of profit-taking. Should investors consider buying either of these "blue chip" cryptocurrencies in this gloomy market?
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The differences between Bitcoin and Ethereum
Bitcoin is mined using the energy-intensive proof-of-work (PoW) consensus mechanism, which requires miners to run powerful computers to solve cryptographic puzzles. Ethereum was originally mined as a PoW token, but it transitioned to the more energy-efficient proof-of-stake (PoS) mechanism during "The Merge" in 2022. It could no longer be mined after that transition, but it could still be staked (locked up on the blockchain to earn interest-like rewards) and used to develop decentralized apps and other crypto assets via smart contracts. Bitcoin can't be natively staked on its own blockchain, and it doesn't support smart contracts.
CRYPTO: BTC
Key Data Points
Bitcoin has a supply cap of 21 million tokens, and miners have already mined nearly 20 million of them. It also halves its mining rewards through a "halving" every 4 years. That's why it's often valued for its scarcity, in a manner similar to gold, silver, or other commodities.
Ethereum, which has a circulating supply of 121.6 million tokens, doesn't have a maximum supply. Instead, new tokens are constantly created through staking, while excess tokens are periodically burned (removed from circulation) to tighten up its supply. Therefore, Ethereum is more often valued by the growth of its developer ecosystem, which hosted nearly 32,000 active developers as of last September, as the world's top developer-oriented blockchain.
CRYPTO: ETH
Key Data Points
Which cryptocurrency is a smarter long-term buy?
Bitcoin and Ethereum are both more conservative investments than other smaller altcoins. They're also both supported by their own spot price ETFs. However, if I had to choose one over the other today, I'd pick Ethereum over Bitcoin because it has clearer catalysts.
The Ethereum Foundation plans to improve its blockchain's scalability, reduce its network congestion and gas fees, and increase its overall efficiency through three major upgrades -- The Verge, The Purge, and The Splurge -- over the next few years. Its new Layer 2 (L2) blockchains, which run on top of its Layer 1 (L1) blockchain, will also boost its transaction speeds. Those improvements could reinforce Ethereum's leading position among developer-oriented blockchains, driving the increased usage of its token across those decentralized apps.
Bitcoin is becoming scarcer, but it faces competition from stablecoins, which are pegged to the U.S. dollar, as well as gold and other precious metals as a hedge against inflation. If investors pivot toward those more conservative investments, Bitcoin's price could stagnate or decline.
