on the crypto
While the cryptocurrency market is notoriously volatile, Bitcoin and Ethereum have emerged as the two best options for cryptocurrency investors looking for relative security. Bitcoin and Ethereum boast the longest track records, a proven ability to weather bear market cycles, and very high liquidity. Together, these two coins account for nearly 60% of the total cryptocurrency market capitalization.
And, as Coinbase Global points out in its new report on the cryptocurrency market outlook for 2023, the situation is likely to remain much the same next year. According to Coinbase, investors will continue to flock to Bitcoin and Ethereum in 2023 as part of a general flight to quality in a challenging macroeconomic period. If you have to choose, though, which one is better for your wallet?
The main appeal of investing in Bitcoin, of course, is the potential for dizzying long-term portfolio returns. Over the 10-year span from 2011 to 2021, Bitcoin was the single best-performing asset in the world, generating annualized returns of 230%. This performance outpaced the returns of riskier and fastest growing tech stocks by 10 times. While past returns are hardly a guarantee of future returns (this was evident in 2022), this kind of historical track record is certainly enticing. In two of these years, Bitcoin has produced truly abysmal performances (-58% in 2014 and -73% in 2018), so this gives me hope that Bitcoin is able to overcome a terrible 2022, in which it fell by almost 65%.
From a long-term perspective, Bitcoin is also interesting as a form of online payment. Amidst all the talk about the “cashless society” and introducing new central bank digital currencies (CBDCs) on a global basis, there is clearly a growing demand for digital currencies. And Bitcoin, of the major cryptocurrencies, offers the best opportunity to profit from this age-old trend. Right now, the number of ways to pay with Bitcoin may seem limited, but some finance experts predict that customers will soon be paying for everything online with Bitcoin. When that happens, Bitcoin will become even more valuable.
Ethereum offers equally interesting prospects, based on future growth projections. Right now, the Ethereum blockchain serves as the foundational layer for the rapid innovations happening in industries like smart contracts, decentralized finance (DeFi), gaming, the metaverse, Web3, and non-fungible tokens (NFTs). This has led to the creation of a very vibrant ecosystem for Ethereum users and developers. Some of the most valuable cryptocurrencies are in fact tokens created on the Ethereum blockchain.
From a portfolio diversification standpoint, this growth in so many different sectors of blockchain and cryptocurrencies offers some security and much-needed diversification. Yes, the NFT market may be in a slump right now, but the gaming and metaverse segment is ready to take off. So while investing in cryptocurrencies is always risky, the risk is less because Ethereum is so well diversified.
The risk, however, is that Ethereum has become such a leader in the blockchain space that other rivals are constantly popping up to challenge it. Rival tier 1 blockchains, such as Solana and Avalanche, are still being singled out as potential “Ethereum killers” due to their speed, low transaction fees, and superior scalability. Ethereum's successful transition to a proof-of-stake blockchain as part of this year's The Merge, however, should help allay some of those concerns. The merger will make Ethereum faster, more scalable, more resilient to network outages, and better able to defend its competitive moat.
Bitcoin or Ethereum?
Choosing between Bitcoin and Ethereum may seem like choosing between two favorite children, but if I had to choose, I would choose Bitcoin or to trade BTC on Bitcoin Revolution. In part, this has to do with the historical returns that Bitcoin has provided over time. Over its entire life, Bitcoin has provided investors with a staggering 16.531,8%. And it has survived at least five cryptocurrency bear market cycles, skyrocketing each time.