Bitcoin’s long reign as the apex cryptocurrency to keep in your portfolio could be coming to an end.
Which begs the question, what would you invest in if you could only have one cryptocurrency in your portfolio? For good reason, most people would probably say Bitcoin (BTC 2.29%). Bitcoin is not only the most well-known and popular cryptocurrency, but it is also frequently used as the standard against which all other cryptocurrencies are measured. Bitcoin has always outperformed its competitors in terms of market capitalization.
So, is it possible that Ethereum (ETH 6.30%) is a better long-term investment than Bitcoin? For years, Ethereum has been a distant second to Bitcoin. However, there are several key reasons why Ethereum may now be a better long-term investment.
Most importantly, the technological platform that underpins Ethereum is about to undergo a significant upgrade.
The Merge before The Surge: Ethereum’s Evolution
If there is only one reason to reconsider your Ethereum investment thesis, it has to be the Merge. This is the long-awaited transition of the Ethereum blockchain from a proof-of-work to a proof-of-stake consensus mechanism.
In layman’s terms, this means that Ethereum will soon be running on superior technology, allowing everything on the Ethereum blockchain to be done faster, cheaper, and better.
Bitcoin, on the other hand, is still mired in its energy-intensive, low-throughput proof-of-work mining technology. According to some, the July crypto rally was fueled by optimism about the upcoming Merge, and with reason.
Utility
This leads us to the second reason why Ethereum is a better long-term investment than Bitcoin. Simply put, Ethereum has more real-world utility than Bitcoin. Non-fungible tokens (NFTs), smart contracts, and decentralized finance (DeFi) protocols have all been created by developers and run on top of the Ethereum blockchain. Ethereum has an entire ecosystem surrounding it that Bitcoin does not have.
While Bitcoin has more social media avatars attempting to push it higher, Ethereum has more developers, entrepreneurs, and IT professionals bringing real-world applications to life. You can use Bitcoin to pay for transactions or keep it as a long-term store of value in the hope that its value will rise due to digital scarcity. However, Bitcoin is much more limited than Ethereum due to its underlying technological infrastructure.
Changing Investment Narratives
That brings us to the final reason Ethereum is a better long-term play than Bitcoin: the entire investment narrative surrounding Bitcoin is crumbling. Until the market crash this year, the main reason for holding Bitcoin for the long term was that it was uncorrelated to traditional investments like stocks. In other words, even if the stock market as a whole tanked, Bitcoin would not. It would function similarly to “digital gold” in this regard. When everything else was melting down, it would have intrinsic value.
As more investors began to regard Bitcoin as “digital gold,” it was natural for people to want to hold BTC during a crisis or downturn. But what happened in the most recent market downturn? Bitcoin fell just like every other cryptocurrency, albeit harder and faster in some cases. As a result, some of the allure of Bitcoin as “digital gold” is fading.
At the same time, the Merge’s shift to a proof-of-stake mechanism will turn ETH into a deflationary asset, increasing its appeal as a potential inflationary hedge. Furthermore, because of how staking works, an increasing amount of ETH will be “locked up” and unavailable for trading. The price of ETH will naturally rise as a result, owing to the simple law of supply and demand.
Ethereum: A Foundation for the Future
As if that weren’t enough, an increasing number of high-profile companies worldwide are building on top of the Ethereum blockchain. Simply put, Ethereum is quickly becoming the blockchain of choice for large institutions due to its flexibility and scalability. Ethereum is “digital oil” if Bitcoin is “digital gold.”
Ethereum will be the more valuable cryptocurrency in the long run because it has more practical applications.
Final thoughts
There is no doubt as to Ethereum’s utility and adoption but as the September merge approaches those not already invested in Ethereum should be prepared for a “buy the rumor, sell the news” situation as most of the recent increase in the price of Ethereum is due in great part to the enthusiasm surrounding the Merge. As with any investment, do your own research and never invest more than you can afford to lose.